EDGAR 10-K Filing

Company CIK: 1637655
Filing Year: 2022
Filename: 1637655_10-K_2022_0001637655-22-000062.json

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ITEM 1. BUSINESS
Item 1. Business
Overview
Horizon Global Corporation, which we refer to herein as “Horizon,” “Horizon Global,” “we,” “our,” or the “Company,” became an independent, publicly traded company as the result of a tax-free spin-off (the “Spin-off”) from TriMas Corporation (“TriMas”) on June 30, 2015. The Company’s common stock began trading on the New York Stock Exchange (“NYSE”) under the ticker symbol “HZN” on July 1, 2015.
We 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, operating 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.
The Company groups its business into operating segments generally by the region in which sales and manufacturing efforts are focused. The Company has two operating segments, Horizon Americas and Horizon Europe-Africa. Horizon Americas has operations in North America, operating in the United States, Mexico and Canada, and is generally a leader in towing and trailering-related products sold through the aftermarket, OE, retail, e-commerce and industrial channels in the geographies where it operates. Horizon Europe-Africa focuses their sales and manufacturing efforts outside of North America. Horizon Europe-Africa operates primarily in Germany, France, the United Kingdom, Romania and South Africa. We believe Horizon Europe-Africa is generally a leader in towing related products sold primarily through the aftermarket and OE channels in the geographies where it operates.
Our products are used in two primary categories across the world: commercial applications, or “Work,” and recreational activities, or “Play.” Some of the markets in our Work category include agricultural, automotive, construction, fleet, industrial, marine, military and municipalities. Some of the markets in our Play category include equestrian, power sports, recreational vehicle, specialty automotive, truck accessory and other specialty towing applications. We believe that the primary brands we offer are among the most recognized in the markets we serve and are known for quality, safety and performance.
We believe no individual competitor serving the sales channels we participate in can match our broad product portfolio. Our products reach end consumers through multiple sales channels which we categorize as follows:
▪Aftermarket: This sales channel represents sales to automotive installers and warehouse distributors. In addition to selling our towing and trailering products to the aftermarket sales channel, we also sell our cargo management and “other” products to this sales channel. The cargo management product category includes a wide variety of products used to facilitate the transportation of various forms of cargo. Examples of these products include bike racks, roof cross bar systems, cargo carriers, luggage boxes, car interior protective products, loading ramps and interior travel organizers. The “other” product category includes a diverse range of items in our portfolio that do not fit into towing, trailering or cargo management categories. Examples of these products include tubular push bars, side steps, sports bars, skid plates and oil pans.
▪Automotive OEM and automotive OES: The automotive OEM sales channel represents sales to automotive vehicle manufacturers while automotive OES primarily represents sales to automotive vehicle dealerships. We primarily sell our towing products to the OEs. This product category includes devices and accessories installed on a tow-vehicle for the purpose of attaching a trailer, camper, etc., such as hitches/tow bars, fifth wheels, gooseneck hitches, weight distribution systems, brake controllers, wiring harnesses, draw bars, ball mounts, crossbars, security and other towing accessories.
▪Retail: This sales channel represents sales to direct-to-consumer retailers, such as traditional brick and mortar merchants. While we offer a majority of our products to the retail sales channel, we primarily focus on towing and cargo management products in this sales channel.
▪E-commerce: This sales channel represents sales to direct-to-consumer retailers who utilize the Internet to purchase the Company’s products. Similar to the retail sales channel, we offer a majority of our products to the e-commerce sales channel, with a focus on towing and cargo management products.
▪Industrial: This sales channel represents sales to non-automotive manufacturers and dealers of agricultural equipment, trailers and other custom assemblies. We primarily sell our trailering products to the industrial sales channel. This product category includes control devices and components of the trailer itself, such as brake controllers, jacks, winches, couplers, interior and exterior vehicle lighting and brake replacement parts.
We have positioned our product portfolio to create a variety of options based on price-point, ranging from entry-level to premium-level products across most of our markets. We believe the brands we offer in our aftermarket channel have significant customer recognition, with the three most significant being Draw-Tite®, Reese® and Westfalia®. We believe all three have substantial market share and have been leading brands in the towing market for over 50 years. These brands provide the foundation of our market position based on worldwide commercial and consumer acceptance. We also maintain a collection of regionally recognized brands that include Bulldog®, BTM, Fulton®, Reese Secure™, Reese Explorer™, Reese Power Sports, Reese Towpower™, ROLA®, Tekonsha®, WesBar® and Witter Towbar Systems.
Our Industry
Our products are sold into a diverse set of end-markets; the primary applications relate to automotive accessories for light and recreational vehicles. Purchases of automotive accessory parts are discretionary, and we believe demand is driven by macroeconomic factors including (i) employment trends, (ii) consumer sentiment and (iii) fuel prices, among others.
We believe each of these metrics impact both our Work- and Play-related sales. In addition, we believe the Play-related sales are more sensitive to changes in these macroeconomic factors, given the Play-related sales tend to be more directly related to disposable income levels.
Aftermarket, Retail and E-Commerce Channels
We sell our products in these sales channels to a wide range of customers, including national and regional distributors, installers, and both traditional brick and mortar and e-commerce merchants, including automotive, home hardware, farm and fleet, and mass merchants. More recent trends in these sales channels include:
▪Channel Consolidation: In the more mature market of the United States, there has been increasing consolidation in distribution networks with larger, more sophisticated aftermarket distributors and retailers gaining market share. In kind, these distributors generally require larger, more sophisticated suppliers with product expertise, category management and supply chain services and capabilities, as well as a global manufacturing and services footprint. We provide customers in this category the opportunity to rationalize their supply base of vendors in our product lines by virtue of our broad offering and product expertise; and
▪Growth of Online Capabilities: The ability to reach consumers directly through online capabilities, including e-commerce, is having an increasing impact on the global automotive aftermarket and retail channels. Establishment of a robust online presence is critical for suppliers regardless of whether or not they participate directly in e-commerce. We believe we are positioned well to take advantage of this continuing trend through our established online presence combined with our market leading brands. We support consumers by offering a wide range of information on our products and services, including installation videos, custom-fit guides and links to authorized dealers and both brick and mortar and e-commerce merchants.
OE and Industrial Channels
While OE and industrial channel demand is typically driven by planned production, suppliers also grow by increasing their product content on each unit produced through sales of existing product lines or expansion into new product line offerings. Given more recent trends of consolidation and globalization throughout the industry, suppliers combining a global presence with strong engineering, technology, manufacturing, supply chain and customer support will be best positioned to take advantage of OE and industrial business opportunities.
More recent trends in the global OE and industrial supplier market include:
▪Global Platform/Supplier Consolidation: OEs continue to adopt global vehicle platforms to decrease product development costs and increase manufacturing efficiency and profitability. As a result, OEs may select suppliers with
capacity to manufacture and deliver products on a global basis as well as the flexibility to adapt products to local variations. Suppliers with a global supply chain and efficient manufacturing capabilities are best positioned to benefit from this trend. We believe we are uniquely positioned to take advantage of this trend as a result of our strategic manufacturing footprint, highly developed supply chain relationships and track record of success in solving application challenges in our product lines;
▪Outsourcing of Design and Manufacturing of Vehicle Parts and Systems: OEs continually strive to simplify their assembly processes, lower costs and reduce development times. As a result, they have increasingly relied on suppliers to perform many of the design, engineering, research and development and assembly functions traditionally performed by OEs. Suppliers with extensive design and engineering capabilities are in the best position to benefit from this trend as they are able to offer value-added solutions with superior features and convenience. We believe certain OEs have sought us out to assist with their engineering challenges to increase towing capacity and for the many solutions provided by our existing products; and
▪Shorter Product Development Cycles: Due to frequent shifts in government regulations and customer preferences, OEs are requiring suppliers to continue to provide new designs and product innovations. These trends are prevalent in mature markets as well as, emerging markets, which are advancing rapidly towards the regulatory standards and consumer preferences of the more mature markets. Suppliers with strong technologies, robust engineering and development capabilities are best positioned to meet OE demands for rapid innovation. Our broad product offerings, product expertise, and strategic engineering footprint enables us to rapidly deploy solutions meeting the changing customer needs.
Competitive Strengths
We believe our operating segments share and benefit from the following competitive strengths:
▪Diverse Product Portfolio of Market Leading Brands. We believe we benefit from a diverse portfolio of high-quality and highly-engineered products sold under globally recognized and market leading brand names. By offering a wide range of products, we are able to provide a complete solution to satisfy our customers’ towing, trailering and cargo management needs, as well as serve diverse channels through effective brand management. Our brands are well-known in their respective product areas and channels. We believe we are among the leading suppliers of towing and trailering products in the markets we serve.
▪Global Scale with Flexible Manufacturing Footprint and Supply Chain. We were built through internal growth and a series of acquisitions to become an automotive accessories company with a broad range of products. Our sourcing arrangements with third-party suppliers provides us with the ability to manufacture or source high-volume products as end-market demand fluctuates, while also providing us the flexibility to produce low-volume and customized products throughout our strategically located manufacturing facilities. Our flexible manufacturing capability, low-cost manufacturing facilities and established supply chain allow us to quickly and efficiently respond to changes in end-market demand.
▪Long-Term Relationships with a Diverse Customer Base. Our customers encompass a broad range of OEs, mass merchants, e-commerce websites, distributors, dealers, and independent installers, representing multiple channels reaching the end consumer. Blue chip customers include Ford Motor Company, Volkswagen, BMW, Mercedes-Benz, Toyota, Tractor Supply Company, AutoZone, O’Reilly Auto Parts, Canadian Tire, Amazon, Etrailer, LKQ, U-Haul and Redneck Trailer Supplies, among others. Our customer relationships are well established, with many exceeding 20 years. These strong partnerships can provide stability to our revenue base through economic cycles. We believe our diverse product portfolio, global scale and flexible manufacturing capabilities enable us to provide a unique value proposition to customers.
▪Globally Competitive Cost Structure. We are consistently focused on margin improvement activities, identifying and acting on projects to reduce our cost structure. We believe our focused, identifiable projects that are under way or complete, our strong brand names, leading market position, and flexible manufacturing and sourcing operations will yield improved operating margins and cash flow that can then be deployed to high-value creation activities.
Key Business Priorities
Horizon Global established the following strategic platforms for value creation focused on business improvement and transformation, supported by a company culture of continuous improvement.
•Margin Expansion. Our first priority is to drive the organization to an operating margin that is competitive with or above industry expectations. We believe the investments made in our facilities and equipment over the past few years, along with our efforts to realign and rebalance our operations, should provide the foundation for additional margin expansion. We are an organization in which our team members are focused on constantly improving the efficiency of all operations through the adoption of lean and continuous improvement practices.
•Liquidity Management. Our second priority is to continue to effectively manage the liquidity of the business. We believe the recently completed refinancing activities and resulting improved capital structure have positioned us to meet the liquidity needs of the business with a focus on working capital management and cash flow generation, while servicing our debt obligations.
•Organic Growth. Our third priority is to grow the business organically. We have identified areas of focused growth activities, including involving geographic markets, new customers in the sales channels we service and product line expansion, which we believe are particularly aligned with our competitive strengths.
Growth Strategies
We believe we have multiple opportunities to integrate, improve and grow our business, whether via organic initiatives, via new geographies or new product development, through the following strategies:
•Balanced Aftermarket and Original Equipment Growth. The global market for accessories and vehicle personalization is increasing across channels. The Company is positioned to balance its OE growth with growth in the aftermarket as we have significant brand recognition and strategic distributor and customer relationships. We believe that our significant brand recognition in the marketplace will allow us to support profitable organic growth to meet customer demand in the aftermarket channel. Further, automotive manufacturers are looking for suppliers to partner with to create genuine accessories to meet this need. Historically, this has been undertaken as a regional effort, but the growth of global OE programs may increase the need for global suppliers. Our geographic footprint, existing customer relationships and the potential for growth in global vehicle platforms align to present us with unique opportunities to grow with our OE customers.
•E-commerce. We will continue to leverage the breadth of our product portfolio and global manufacturing footprint by continuing to expand our presence in the high growth e-commerce channel. This strategy is applicable in our developed markets where a focus on content delivery and customer support drive growth. It is also a powerful tool as we look at developing new, less mature markets around the world, enabling a direct connection with the users of our product set.
•Low Cost Countries. We believe our manufacturing presence in Mexico and Eastern Europe, coupled with our strategic distribution network provides opportunities for growth, while supporting both new and existing global and regional customers in a cost-effective manner across our sales channels. When leveraged appropriately, it allows us to manufacture and distribute our products in a localized and regionalized manner efficiently and supports having the right product in the right place to best serve customer and end market needs.
•Product Innovation. Our presence in the OE channels and multiple geographic markets allows us to leverage development costs and product innovation tied to new vehicles across our entire geographic footprint. We aim to be first to market in the aftermarket with our historical success of leveraging our OE innovation into the aftermarket channel, which supports profitable organic growth.
Marketing, Customers and Distribution
Horizon employs a dedicated sales force in each of our primary channels. In serving our customers globally, we rely upon our strong historical customer relationships, custom engineering capability, brand recognition, broad product offerings, our established distribution network and varied merchandising strategies to bolster our towing, trailering, cargo management and accessory product sales. No customer represented greater than 10% of total net sales during the twelve months ended December 31, 2021 and 2020.
Competition
The competitive environment for automotive accessory products is highly fragmented and is characterized by numerous smaller suppliers, even the largest of which tend to focus in narrow product categories. We believe there is no individual competitor that has the breadth of product portfolio in the markets we serve. Significant towing competitors include LCI Industries, B&W Trailer Hitches, Husky Towing Products, Winston Products, ACPS Automotive, ALKO Group, Buyers Products Company, Demco Products, PullRite, Westin Automotive Products and Camco. Significant trailering competitors include Pacific Rim, Dutton-Lainson, SAF-Holland, Demco Products, Jost International and Sea-Sense. In addition, competitors in the cargo management product category include Thule, Yakima, Bell, Masterlock and Saris.
Materials and Supply Arrangements
We procure a variety of materials from a global supplier base from around the world. We are sensitive to price movements in our raw materials supply base. Our largest material purchases are for steel, copper, and aluminum. We also consume a significant amount of energy via utilities in our facilities. Historically, when we have experienced increasing costs of steel, we have successfully passed those through to our customers, although sometimes with a delay due to competitive pressure. Refer to Item 1A, “Risk Factors” for additional information.
Human Capital Resources
As of December 31, 2021, we employed approximately 3,800 people, of which approximately 13% were located in the United States. In the United States, we have no collective bargaining agreements. In June 2020, the Company successfully completed a three-year agreement with our largest union in Horizon Europe-Africa. Globally, employee relations have generally been satisfactory. We cannot predict the impact of any future unionization of our workplace.
Horizon Global focuses on a number of human capital resources objectives in managing its business, including our commitment to safety, employee engagement, diversity and inclusion, and talent development. These human capital resources objectives, taken together, may be material to understanding our business under certain circumstances. These objectives are reinforced by our code of conduct, The Spirit and the Letter, our global policies, and our commitment to sustainability as evidenced in our 2021 Sustainability Report.
Commitment to Safety
One of our primary objectives is the health and safety of our employees and anyone who conducts business on our behalf. The commitment to safety starts at the top levels of our organization. We believe a safe and secure workplace is fundamental and important to our success. Horizon Global is committed to providing a safe and healthy workplace, and complying with applicable safety and health laws, regulations and internal requirements. We are also committed to engaging our employees to continually improve health and safety by acting upon opportunities to reduce risk and improve our safety and health performance. Horizon Global maintains comprehensive safety programs focused on identifying hazards and eliminating risks that can lead to severe injuries.
The Company prioritizes the health of its employees and others in the communities where it does business and continues to take appropriate measures during the COVID-19 pandemic, including providing information resources, leveraging remote work for certain administrative employees, requiring the use of personal protective equipment by all employees during working hours and requiring essential on-site employees to practice social distancing.
Employee Engagement
The Company maintains a commitment to continuous improvement as one of our core values and is imperative to our long-term business strategies and initiatives. We embrace lean manufacturing principles, such as Kaizen, and work to foster a culture of employee engagement to drive performance improvements and operational excellence.
Diversity and Inclusion
We believe we are at our best when we bring together unique perspectives, experiences and ideas, and actively build diverse teams and inclusive work environments across our global locations. We believe that tapping into our employees’ diverse backgrounds and experiences ensures we make better decisions and supports stronger operating performance. Our goal is to foster working environments that are fair and safe, where rights are respected and everyone can achieve their full potential. Our policies and practices strive to assure equal employment and advancement opportunities for all qualified people. We also work to maintain appropriate standards of conduct in the workplace and to be sensitive to the concerns of our diverse group of employees. We strive to maintain workplaces that are free from discrimination or harassment on the basis of race, religion, color, national origin, sex, age, genetic information, sexual orientation, gender identity, protected veteran status, disability or any other characteristic protected by applicable law.
Talent Development
We believe that a talented, engaged and dynamic workforce is vital to our success. We seek to hire, develop and retain individuals who embrace and thrive in our culture. Our culture is grounded in our values: Socially Responsible, Respectful & Open Team, Integrity & Accountability and Data & Results Driven. Our business strives to build a dynamic talent pipeline through robust recruitment initiatives across our operating footprint. Our programs are intended to ensure seamless onboarding for our new employees. We identify and nurture talent through a culture designed to enable employees to succeed and grow into leadership positions. We believe our business and structure provide opportunities for employees to follow their own path and advance their careers.
We support a culture of continuous growth and development, and we provide employees with the opportunity to receive frequent performance feedback. Our employees have goals and objectives that align to both personal development and the Company’s strategic objectives. The performance management process includes performance and career development discussions between employees and their managers (via annual goal setting and year-end performance and talent reviews). During this process, employees receive candid feedback on their performance against established goals and objectives. These reviews evaluate each employee’s strengths, skills, areas for opportunity and growth, which are important for career development.
Seasonality
We experience some seasonality in our business. Sales of towing and trailering products are generally stronger in the second and third calendar quarters, as trailer OEs, distributors and retailers acquire product for the spring and summer selling seasons. In addition, within the OE channels, there is moderate seasonality due to production schedules and the launch of component production for new vehicle models, which generally occurs in the third calendar quarter of the year. Accordingly, our results reflect any seasonality we may experience.
Government Regulation
We are subject to U.S. federal, state and local, and non-U.S. international environmental, safety and health laws and regulations, including those relating to air emissions, wastewater discharges and chemical and hazardous waste management and disposal. Some of these environmental laws hold owners or operators of land or businesses liable for their own and for previous owners’ or operators’ releases of hazardous or toxic substances or wastes. Other environmental laws and regulations require the obtainment and compliance with environmental permits. To date, costs of complying with environmental, health and safety requirements have not been material. However, the nature of our operations and our long history of industrial activities at certain of our current or former facilities, as well as those acquired, could potentially result in material environmental liabilities.
While we must comply with existing and pending climate change legislation, regulation and international treaties or accords, current laws and regulations have not had a material impact on our business, capital expenditures or financial position. Future events, including those relating to climate change or greenhouse gas regulation could require us to incur expenses related to the modification or curtailment of operations, installation of pollution control equipment or investigation and cleanup of contaminated sites.
In addition to environmental laws and regulations, our operations are governed by variety of laws and regulations, including those relating to workplace safety and worker health, principally the Occupational Safety and Health Act and regulations thereunder. Although we cannot provide assurance that at all times we are compliant, we believe that we are in compliance with these laws and regulations. In addition, we do not believe that future compliance with such laws and regulations will have a material adverse effect on our business, financial condition, results of operations and cash flows.
International Operations
For the twelve months ended December 31, 2021, 43.2% of our net sales were derived outside of the United States. In addition, as of December 31, 2021, 65.4% of our consolidated property and equipment, net were located outside of the United States. We operate manufacturing facilities in France, Germany, Mexico, Romania and South Africa.
Website Access to Company Reports
We use our Investor Relations website, www.horizonglobal.com, as a venue for routine distribution of important information, including news releases, analyst presentations and financial information. We post filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC, including our annual, quarterly, and current reports on Forms 10-K, 10-Q and 8-K, our proxy statements and any amendments to those reports or statements. All such postings and filings are available on our Investor Relations website free of charge. The SEC also maintains a website, www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report on Form 10-K unless expressly noted.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
You should carefully consider each of the risks described below, together with information included elsewhere in this Annual Report on Form 10-K and other documents we file with the SEC. The risks that are highlighted below are not the only ones that we face. These risks and other forward-looking statements that relate to future events, expectations, trends and operating periods involve certain factors that are subject to change, and important risks and uncertainties that could cause actual results to differ materially. You should not interpret the disclosure of any risk factor to imply that the risk has not already materialized. Although the risks are organized by headings, and each risk is discussed separately, many are interrelated. If any of the following risks actually occur, our business, financial condition or results of operations could be negatively affected.
Risks Relating to the COVID-19 Pandemic
The COVID-19 pandemic has disrupted, and may continue to disrupt, our business, which could result in a material adverse impact to our business, results of operations, cash flow, liquidity and financial condition.
In December 2019, an outbreak of COVID-19 occurred in China and has since spread to other parts of the world. On March 11, 2020, the World Health Organization declared COVID-19 to be a global pandemic and recommended containment and mitigation measures. On March 13, 2020, the United States declared a national emergency concerning the outbreak. Along with these declarations, extraordinary and wide-ranging actions were taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions across the United States and the world, including quarantines, social distancing and “stay-at-home” orders, travel restrictions, mandatory business closures and other mandates that substantially restricted individuals’ daily activities and curtailed or ceased many businesses’ normal operations.
To date, the COVID-19 pandemic has surfaced in nearly all regions around the world, negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets. As a result, we have experienced, and may continue to experience, decreases in demand and customer orders for our products in all sales channels, as well as temporary disruptions and closures of some of our facilities due to decreased demand and government mandates. The COVID-19 pandemic has also impacted various aspects of the supply chain as our suppliers experience similar business disruptions due to operating restrictions from government mandates. We continue to monitor procurement of raw materials and components used in the manufacturing, distribution and sale of our products, but continued disruptions in the supply chain due to the COVID-19 pandemic may cause difficulty in sourcing materials or unexpected shortages or delays in delivery of raw materials and components, and may result in increased costs in our supply chain. We have implemented plans to reduce spending in certain areas of our business, including flexing variable labor, involuntary leave programs, reductions or delays in variable costs and investments, including capital expenditures, and may need to take additional actions to reduce spending in the future.
Generally, government restrictions have been lifted and economies have reopened; however, certain jurisdictions or regions may have to re-establish restrictions due to a resurgence in COVID-19 cases or otherwise, which could require us, our customers or our suppliers to close or limit operations. Accordingly, the ultimate shape of the economic recovery is uncertain. We will continue to closely monitor and assess the impact of the pandemic on our business, the extent of the impact on our liquidity to meet our short-term obligations and fund our business needs and growth, and our ability to meet financial covenants within our credit agreements. While we are closely monitoring the impact of the pandemic on all aspects of our business, the extent of the impact on our results of operations, cash flow, liquidity, and financial performance, as well as our ability to execute near- and long-term business strategies and initiatives, will depend on numerous evolving factors and future developments, which are highly uncertain and cannot be reasonably predicted, including: (a) the duration, severity and scope of the pandemic, including the resurgence of COVID-19 cases, particularly as variants of COVID-19 arise; (b) rapidly-changing governmental and public health mandates and guidance to contain and combat the outbreak; (c) the extent and duration of the pandemic’s adverse effect on economic and social activity, consumer confidence, discretionary spending and preferences, labor and healthcare costs, and unemployment rates, any of which may reduce demand for some of our products and impair the ability of those with whom we do business to satisfy their obligations to us; (d) our ability to sell and provide our services and products, including as a result of any restrictions, mandatory business closures, and any stay-at home or similar orders; (e) any temporary reduction in our workforce, closures of our offices and facilities, labor shortages, increased competition in the labor market and our ability to adequately staff and maintain our operations; (f) the ability of our customers and suppliers to continue their operations, which could result in terminations of contracts, losses of revenue, and further adverse effects to our supply chain; (g) any impairment in value of our tangible or intangible assets, which could be recorded as a result of weaker economic conditions; and (h) the potential effects on our internal controls, including as a result of changes in working environments and observing stay-at-home and similar orders that are applicable to our employees and business partners, among others. In addition, if the pandemic continues to create disruptions in the credit or financial markets, or impacts our credit ratings, it could adversely affect our ability to access capital on favorable terms and continue to meet our liquidity needs.
Given the inherent uncertainty surrounding the COVID-19 pandemic, the pandemic may have an adverse impact on our business, results of operations, cash flow, liquidity, and financial condition.
Risks Relating to Economic Conditions
Our businesses depend upon general economic conditions, and we serve some customers in highly cyclical industries; as such, we may be subject to the loss of sales and margins due to an economic downturn or recession.
Our financial performance depends, in large part, on conditions in the markets that we serve in both the U.S. and global economies. Some of the industries that we serve are highly cyclical, such as the agricultural, automotive, construction, horse/livestock, industrial, marine, military, recreational, trailer and utility markets. We may experience a reduction in sales and margins as a result of a downturn in economic conditions or other macroeconomic factors. Lower demand for our products may also negatively affect the capacity utilization of our production facilities, which may further reduce our operating margins.
Risks Relating to Our Business and Operations
Many of the markets we serve are highly competitive, which could limit the volume of products that we sell and reduce our operating margins.
Many of our products are sold in competitive markets. We believe that the principal points of competition in our markets are product quality and price, design and engineering capabilities, product development, conformity to customer specifications, reliability and timeliness of delivery, customer service and effectiveness of distribution. Maintaining and improving our competitive position will require our continued investment in manufacturing, engineering, quality standards, marketing, customer service and support of our distribution networks. We may have insufficient resources in the future to continue to make such investments and, even if we make such investments, we may not be able to maintain or improve our competitive position. We also face the risk of lower-cost foreign manufacturers located in China, Southeast Asia, India and other regions competing in the markets for our products, and we may be driven to increase our investment overseas as a consequence of this competition. Making overseas investments can be highly complicated and we may not always realize the advantages we anticipate from any such investments. Competitive pressure may limit the volume of products that we sell and reduce our operating margins.
We may not achieve our strategic goals for margin expansion, liquidity management and organic growth. Our past performance in these areas may not be indicative of future performance. Failure to achieve our strategic goals may adversely impact our results of operations.
Our strategic platforms for value creation and goals for margin expansion, liquidity management and organic growth are subject to risk and uncertainty and depend on general economic, credit, capital market and other conditions that are beyond our control and are subject to fluctuation. Our past performance with respect to margin expansion, liquidity management and organic growth should be considered independent from, and may not be a reliable indicator of, future performance. These strategic goals may need to be revised or may not be met for a number of reasons, including changes in general economic conditions in the United States and abroad, changes in credit and capital market conditions, increased competition in the markets for our products, increases in raw material or energy costs and changes in technology and manufacturing techniques.
Increases in our raw material or energy costs or the loss of critical suppliers could adversely affect our profitability and other financial results.
We are sensitive to price movements in our raw materials supply base. Our largest material purchases are for steel, copper and aluminum. The prices for these products have historically been volatile, fluctuate with worldwide market and economic conditions, import duties and tariffs, and may increase as a result of various factors, including: inflation and deflation rates; a reduction in the number of suppliers due to restructuring, bankruptcies and consolidations; declining supply due to mine or mill closures; and other factors that adversely impact supplier profitability, including increases in supplier operating expenses caused by rising raw material and energy costs. We may be unable to completely offset the impact with price increases on a timely basis due to outstanding commitments to our customers, competitive considerations or our customers’ resistance to accepting such price increases and our financial performance may be adversely impacted by further price increases. A failure by our suppliers to continue to supply us with certain raw materials or component parts on commercially reasonable terms, or at all, for any reason, including, without limitation, disruptions in our suppliers’ business due to cybersecurity incidents, terrorist activity, public health crises (such as the COVID-19 pandemic), fires, severe weather conditions (including those caused by climate change) or other natural disasters, could have a material adverse effect on us. To the extent there are energy supply disruptions or material fluctuations in energy costs, our margins could be materially adversely impacted.
In the past, the United States government has indicated its intent to alter its approach to trade policy, including, in some instances, to revise, renegotiate or terminate certain multilateral trade agreements and has also imposed new tariffs on certain foreign goods and raised the possibility of imposing additional increases or new tariffs on other goods. Such actions have, in some cases, led to retaliatory trade measures by certain foreign governments. Such policies could make it more difficult or costly for us to do business in or procure products from those countries. In turn, we may need to raise prices or make changes to our operations, which could negatively impact our revenue or operating results. At this time, it remains unclear what additional actions, if any, will be taken by the U.S. government or foreign governments with respect to tariff and international trade agreements and policies, and we cannot predict future trade policy or the terms of any revised trade agreements or any impact on our business.
Further, we procure a significant portion of our components from suppliers located in China, and we are therefore exposed to potential disruptions in deliveries from these suppliers due to political tensions with China, geopolitical risks, government-mandated facility closures in China due to energy shortages or other causes.
Transportation disruptions or increases in our freight cost could adversely affect our profitability and other financial results.
Because certain of our products are procured from international sources, including China, and imported into our manufacturing and distribution center locations around the world, if disruptions in our transportation network occur or our shipping costs substantially increase, we may be unable to sell or timely deliver our products, and our operating expenses could increase. We are dependent upon the transportation systems we use to ship our products, including various transportation modes of freight such as land, water and air. Our attempts to closely match our inventory levels to our product demand intensify the need for our transportation systems to function effectively and without delay.
The transportation network is subject to disruption or congestion from a variety of causes, including labor disputes or port strikes, acts of war or terrorism, natural disasters, and congestion resulting from higher shipping volumes. A port worker strike, work slow-down, or other transportation disruption in Long Beach, California, where we generally import our products to fulfill certain of our Horizon Americas operating segment orders, could significantly disrupt our business. Our international freight is regularly subjected to inspection by governmental entities. If our delivery times increase unexpectedly for these or any other reasons, our ability to deliver products on time would be materially adversely affected and result in delayed or lost revenue as well as customer imposed penalties. In addition, if increases in fuel prices occur, our transportation costs would likely increase. Moreover, the cost of shipping our products by air freight is greater than other methods. From time to time, we have shipped products using air freight to meet unexpected spikes and shifts in demand between product categories, to bring new product introductions to market quickly and to timely ship products previously ordered. If we rely more heavily upon air freight to deliver our products, our overall shipping costs will increase. A prolonged transportation disruption or a significant increase in the cost of freight could materially adversely affect our business, results of operations, and financial condition.
Our products are typically highly engineered or customer-driven and we are subject to risks associated with changing technology and manufacturing techniques that could place us at a competitive disadvantage.
We believe that our customers rigorously evaluate their suppliers on the basis of product quality, price competitiveness, technical expertise and development capability, new product innovation, reliability and timeliness of delivery, product design capability, manufacturing expertise, operational flexibility, customer service and overall management. Our success depends on our ability to continue to meet our customers’ changing expectations with respect to these criteria. We anticipate that we will remain committed to product research and development, advanced manufacturing techniques and service to remain competitive, which entails significant costs. We may be unable to address technological advances, implement new and more cost-effective manufacturing techniques, or introduce new or improved products, whether in existing or new markets, so as to maintain our businesses’ competitive positions or to grow our businesses as desired.
A portion of our sales is derived from international sources, which exposes us to certain risks which may adversely affect our business and our financial results.
We have operations outside of the United States. For the twelve months ended December 31, 2021, 43.2% of our net sales were derived from sales by our subsidiaries located outside of the United States. In addition, we may expand our international operations through internal growth and acquisitions. International operations, particularly sales to emerging markets and manufacturing in non-U.S. countries, are subject to risks which are not present within U.S. markets, which include, but are not limited to, the following:
•changes in local government regulations and policies including, but not limited to, governmental embargoes, repatriation of earnings, expropriation of property, duty or tariff restrictions, investment limitations and tax policies;
•changes in local economic conditions;
•political and economic instability and disruptions, including labor unrest, civil strife, acts of war, guerrilla activities, insurrection and terrorism;
•legislation that regulates the use of chemicals;
•disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the Foreign Corrupt Practices Act (“FCPA”);
•compliance with international trade laws and regulations, including import and export control and economic sanctions, such as anti-dumping duties and countervailing duties, and/or government authorities that may question our international trade and/or customs positions or change their laws in a manner that may impact our business, financial results or operating cash flows;
•difficulties in staffing and managing multi-national operations;
•limitations on our ability to enforce legal rights and remedies;
•tax inefficiencies in repatriating cash flow from non-U.S. subsidiaries that could affect our financial results and reduce our ability to service debt;
•reduced protection of intellectual property rights;
•increasingly complex laws and regulations concerning privacy and data security, including the European Union’s General Data Protection Regulation;
•the impacts from the ongoing conflict between Russia and Ukraine;
•the impacts related to the United Kingdom’s withdrawal from the European Union; and
•other risks arising out of foreign sovereignty over the areas where our operations are conducted.
We are also exposed to risks relating to U.S. policy with respect to companies doing business in foreign jurisdictions. Changes in laws or policies governing the terms of foreign trade, in particular increased trade restrictions, tariffs or taxes on import from countries where we procure or manufacture products, such as China and Mexico, could have a material adverse effect on our business and results of operations. For instance, the U.S. and Chinese governments have imposed a series of significant incremental retaliatory tariffs to certain imported goods. With respect to the automotive industry, the U.S. imposed tariffs on imports of certain steel, aluminum and automotive components, with China imposing retaliatory tariffs on certain automotive components. Given the uncertainty regarding the duration of the imposed tariffs, as well as the potential for additional tariffs by the United States, China or other countries, as well as other changes in tax policy, trade regulations or trade agreements, and the Company’s ability to implement strategies to mitigate the impact of changes in tax policy, tariffs or other trade regulations, our exposure to the risks described above could have a material adverse effect on our business and results of operations.
Our international sales and operations are also sensitive to changes in foreign national priorities, as well as to political and economic instability. For example, our business in Europe or elsewhere may be impacted by an escalation of tensions between Russia and Ukraine and any economic or trade sanctions enacted to condemn or counteract any Russian aggression towards or invasion of the Ukraine. Any such conflict may also impact our ability to secure raw materials and exacerbate the supply chain disruption we have experienced and further limit our ability to secure certain raw materials or services. Further military action or cyberattacks by Russia to counteract any sanctions may have an impact on demand for our goods and services and adversely impact our results of operation. Our success as a global business will depend, in part, upon our ability to succeed in differing legal, regulatory, economic, social and political conditions by developing, implementing and maintaining policies and strategies that are effective in each location where we do business
Although our financial results are reported in U.S. dollars, a portion of our sales and operating costs are realized in foreign currencies. Our sales and profitability are impacted by the movement of the U.S. dollar against foreign currencies in the countries in which we generate sales and conduct operations. Long-term fluctuations in relative currency values could have an adverse effect on our operations and financial condition.
In addition, we could be adversely affected by violations of the FCPA and similar worldwide anti-bribery laws as well as export controls and economic sanction laws. The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Although we have internal control policies and procedures designed to ensure compliance with these anti-bribery laws, there can be no assurance that our policies and procedures will protect us from acts committed by employees, agents or business partners of ours (or of businesses we acquire or partner with) that would violate these laws. Any violation could cause an adverse effect on operations and financial conditions. Additionally, we rely on our suppliers to adhere to our supplier standards of conduct and material violations of such standards of conduct could occur that could have a material effect on our financial condition.
A future impairment of our intangible assets could have a material negative impact on our financial results.
As of December 31, 2021, our intangible assets were $48.9 million and represented 11% of our total assets. If we experience declines in sales and operating profit or do not meet our current and forecasted operating budget, we may be subject to future impairment charges. Because of the significance of these assets, any future impairment could have a material adverse effect on our financial results.
Risks Relating to Human Capital
We depend on the services of key individuals, the loss of which could materially harm us.
Our success will depend, in part, on the efforts of our senior management. Our future success will also depend on, among other factors, our ability to attract, develop and retain other qualified personnel. The loss of the services of any of our key employees or the failure to attract or retain qualified employees could have a material adverse effect on us.
We may be subject to further unionization and work stoppages at our facilities or our customers may be subject to work stoppages, which could seriously impact the profitability of our business.
As of December 31, 2021, 68% of our work force was unionized under several different unions. We are not aware of any present active union organizing drives at any of our other facilities. We cannot predict the impact of any further unionization of our workplace. Future labor disagreements could result in work stoppages. Any prolonged work stoppages at any of our facilities could have a material adverse effect on our business.
Many of our direct or indirect customers have unionized work forces. Strikes, work stoppages or slowdowns experienced by these customers or their suppliers could result in slowdowns or closures of assembly plants where our products are included. In addition, organizations responsible for shipping our customers’ products may be impacted by occasional strikes or other activity. Any interruption in the delivery of our customers’ products could reduce demand for our products and could have a material adverse effect on us.
Our healthcare costs for active employees and future retirees may exceed our projections and may negatively affect our financial results.
We provide healthcare benefits for active employees through comprehensive hospital, surgical and major medical benefit provisions, all of which are subject to various cost-sharing features. If our costs under our benefit programs for active employees exceed our projections, our business and financial results could be materially adversely affected. Additionally, foreign competitors and many domestic competitors provide fewer benefits to their employees, and this difference in cost could adversely impact our competitive position.
Risks Relating to Intellectual Property
We may face liability associated with the use of products for which patent ownership or other intellectual property rights are claimed.
We may be subject to claims or inquiries regarding alleged unauthorized use of a third party’s intellectual property. An adverse outcome in any intellectual property litigation could subject us to significant liabilities to third parties, require us to license technology or other intellectual property rights from others, require us to comply with injunctions to cease marketing or using certain products or brands, or require us to redesign, re-engineer, or re-brand certain products or packaging, any of which could affect our business, financial condition and operating results. If we are required to seek licenses under patents or other intellectual property rights of others, we may not be able to acquire these licenses on acceptable terms, if at all. In addition, the cost of responding to an intellectual property infringement claim, in terms of legal fees and expenses and the diversion of management resources, whether or not the claim is valid, could have a material adverse effect on our business, results of operations and financial condition.
We may be unable to adequately protect our intellectual property.
While we believe that our patents, trademarks and other intellectual property have significant value, it is uncertain that this intellectual property or any intellectual property acquired or developed by us in the future, will provide a meaningful competitive advantage. Our patents or pending applications may be challenged, invalidated or circumvented by competitors or rights granted thereunder may not provide meaningful proprietary protection. Moreover, competitors may infringe on our patents or successfully avoid them through design innovation. Policing unauthorized use of our intellectual property is difficult and expensive, and we may not be able to, or have the resources to, prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States. The cost of protecting our intellectual property may be significant and could have a material adverse effect on our financial condition and future results of operations.
Risks Relating to Financial Matters
We have a substantial amount of debt. To service our debt, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control. If we cannot generate the required cash, we may not be able to make the necessary payments required under our debt.
As of December 31, 2021, we had total gross debt of $300.9 million (without giving effect to the equity component of our convertible senior notes or any debt discount). Our ability to make payments on our debt, fund our other liquidity needs, and make planned capital expenditures will depend on our ability to generate cash in the future. Our historical financial results have
been, and we anticipate that our future financial results will be, subject to fluctuations. Our ability to generate cash, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot guarantee that our business will generate sufficient cash flow from our operations or that future borrowings will be available to us in an amount sufficient to enable us to make payments of our debt, fund other liquidity needs and make planned capital expenditures. Additionally, we cannot guarantee that we will be able to refinance any of our debt on commercially acceptable terms, or at all.
The degree to which we are currently leveraged could have important consequences for shareholders. For example, it could:
•require us to dedicate a substantial portion of our cash from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, capital expenditures, acquisition and other general corporate purposes;
•increase our vulnerability to adverse economic or industry conditions;
•limit our ability to obtain additional financing in the future on acceptable terms and conditions to enable us to react to changes in our business; or
•place us at a competitive disadvantage compared to businesses in our industry that have less debt.
Additionally, any failure to comply with covenants in the instruments governing our debt could result in an event of default which, if not cured or waived, would have a material adverse effect on us.
The terms of the agreements governing our revolving credit facility and our term loan restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.
The terms of the agreements governing our revolving credit facility and our term loan contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to:
•incur additional indebtedness and guarantee indebtedness;
•pay dividends or make other distributions or repurchase or redeem capital stock;
•prepay, redeem or repurchase certain debt;
•issue certain preferred stock or similar equity securities;
•make loans and investments;
•sell assets;
•incur liens;
•enter into transactions with affiliates;
•alter the businesses we conduct;
•enter into agreements restricting our subsidiaries’ ability to pay dividends; and
•consolidate, merge or sell all or substantially all of our assets.
In addition, the restrictive covenants in the agreements governing our revolving credit facility and our term loan require us to maintain specified financial ratios and satisfy other financial condition tests. Although we entered into amendments to the agreements governing our debt in recent years to, among other things, provide for a relaxation of certain of our financial covenants, our ability to meet the financial ratios and tests can be affected by events beyond our control, and we may be unable to meet them.
A breach of the covenants or restrictions under agreements governing our revolving credit facility and our term loan could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the agreement governing our revolving credit facility would permit the lenders under our
revolving credit facility to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay the amounts due and payable under our revolving credit facility and our term loan, those lenders could proceed against the collateral granted them to secure that indebtedness. In the event our lenders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. As a result of these restrictions, we may be:
•limited in how we conduct our business;
•unable to raise additional debt or equity financing to operate during general economic or business downturns; and
•unable to compete effectively or to take advantage of new business opportunities.
These restrictions may affect our ability to grow in accordance with our strategy. In addition, our financial results, our substantial indebtedness and our credit ratings could adversely affect the availability and terms of our financing.
Our access to new capital may be impacted by fluctuations in interest rates.
As part of our ongoing business, we are exposed to certain market risks, including fluctuations in interest rates and uncertainty regarding Federal Reserve policies. An increase in interest rates may result in tighter capital markets, increasing the cost and reducing the availability of debt financing. Restricted access to debt financing could impact that availability of working capital and may adversely affect us.
We have significant operating lease obligations and our failure to meet those obligations could adversely affect our financial condition.
We lease many of our manufacturing facilities and certain capital equipment. Our rent expense in 2021 under these operating leases was $14.5 million. A failure to pay our rental obligations would constitute a default allowing the applicable landlord to pursue any remedy available to it under applicable law, which would include taking possession of our property and, in the case of real property, evicting us. These leases are categorized as operating leases and are not considered indebtedness for purposes of our debt instruments.
Risks Relating to Legal and Regulatory Matters
We may incur material losses and costs as a result of product liability, recall and warranty claims that may be brought against us.
A significant product liability lawsuit, warranty claim or product recall involving us could adversely affect our financial performance. In the event that our products fail to perform as expected, regardless of fault, and such failure results in, or is alleged to result in, bodily injury and/or property damage or other losses, we may be subject to product liability lawsuits and other claims or we may be required to participate in a recall or other corrective action involving such products. Further, any product liability or warranty issues may adversely affect our reputation as a manufacturer of high-quality, safe products, divert management’s attention, and could have a material adverse effect on our business.
We currently carry insurance and maintain reserves for product liability, warranty claims and product recall. However, our insurance coverage may be inadequate if such claims do arise and any liability not covered by insurance could have a material adverse effect on our business. Although we have been able to obtain insurance in amounts we believe to be appropriate to cover such liability to date, our insurance premiums may increase in the future as a consequence of conditions in the insurance business generally or our situation in particular. Any such increase could result in lower net income or cause the need to reduce our insurance coverage. Any product liability claim may also include the imposition of punitive damages, the award of which, pursuant to certain state laws, may not be covered by insurance. Our product liability insurance policies have limits that, if exceeded, may result in material costs that could have an adverse effect on our future profitability. In addition, warranty claims are generally not covered by our product liability insurance.
Our business may be materially and adversely affected by compliance obligations and liabilities under environmental laws and regulations.
We are subject to stringent environmental laws and regulations at the local, state, national and international levels, and existing and any new laws and regulations, including those relating to air emissions, wastewater discharges and chemical and hazardous waste management, could affect our general business operations. Some of these environmental laws hold owners or operators of land or businesses liable for their own and for previous owners’ or operators’ releases of hazardous or toxic substances or
wastes. Other environmental laws and regulations require the obtainment and compliance with environmental permits. To date, costs of complying with environmental, health and safety requirements have not been material. However, the nature of our operations and our long history of industrial activities at certain of our current or former facilities, as well as those acquired, could potentially result in material environmental liabilities.
While we must comply with existing and pending climate change legislation, regulation and international treaties or accords, current laws and regulations have not had a material impact on our business, capital expenditures or financial position. We cannot assess the financial or operational impact of future regulatory changes; however, future events, including those relating to climate change or greenhouse gas regulation, could require us to incur expenses related to the modification or curtailment of operations, installation of pollution control equipment or investigation and cleanup of contaminated sites.
Changes in laws or regulations or the manner of their interpretation or enforcement could adversely impact our financial performance and restrict our ability to operate our business or execute our strategies.
New laws or regulations, or changes in existing laws or regulations, or the manner of their interpretation or enforcement, could increase our cost of doing business and restrict our ability to operate our business or execute our strategies. In particular, there may be significant changes in U.S. laws and regulations and existing international trade agreements by the current U.S. presidential administration that could affect a wide variety of industries and businesses, including those businesses we own and operate. If the current U.S. presidential administration materially modifies U.S. laws and regulations and international trade agreements, our business, financial condition, and results of operations could be adversely affected.
We could be adversely affected by changes to federal, state, and local tax laws due to changes in compliance requirements. We are subject to extensive tax liabilities imposed by multiple jurisdictions, including but not limited to income taxes, indirect taxes (such as excise, sales & use, and gross receipts taxes), payroll taxes, and property taxes. Tax laws and regulations are dynamic and subject to change as new laws are passed and new interpretations of existing laws are issued and applied. The activity could result in increased expenditures for tax liabilities in the future. Many of these liabilities are subject to periodic audits by the respective taxing authorities. Subsequent changes to our tax liabilities as a result of these audits may subject us to interest and penalties, which could have a material effect on our financial condition and results of operations.
We may be exposed to certain regulatory and financial risks related to climate change.
Growing concerns about climate change may result in the imposition of additional regulations or restrictions to which we may become subject. A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to climate change, including regulating greenhouse gas emissions. The outcome of new legislation or regulation in the U.S. and other jurisdictions in which we operate may result in new or additional requirements, additional charges to fund energy efficiency activities, and fees or restrictions on certain activities. Compliance with these climate change initiatives may also result in additional costs to us, including, among other things, increased production costs, additional taxes, reduced emission allowances or additional restrictions on production or operations. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations. Even without such regulation, increased public awareness and adverse publicity about potential impacts on climate change emanating from us or our industry could harm us. We may not be able to recover the cost of compliance with new or more stringent laws and regulations, which could adversely affect our business and negatively impact our growth. Furthermore, the potential impact of climate change and related regulation on our customers is highly uncertain and there can be no assurance that it will not have an adverse effect on our financial condition and results of operations.
Risks Relating to Cybersecurity
Increased information technology security threats and more sophisticated and targeted computer crime could pose a risk to our systems, networks, and products.
We collect, store, have access to and otherwise process certain confidential or sensitive data, including proprietary business information, personal data or other information that is subject to U.S. or international privacy and security laws, regulations and/or customer-imposed controls. Increased global information technology security threats and more sophisticated and targeted computer crime pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data and communications. While we attempt to mitigate these risks by employing a number of measures, monitoring of our networks and systems, and maintenance of backup and protective systems, our systems, networks and products remain potentially vulnerable to compromise from advanced persistent threats, employee malfeasance, human or technological error, and other cybersecurity threats. Depending on their nature and scope, such threats could potentially lead to
the compromising of confidential information and communications, improper use of our systems and networks, manipulation and destruction of data, defective products, production downtimes and operational disruptions, which in turn could adversely affect our reputation, customer relationships, competitiveness and results of operations. We may be required to incur significant costs to remedy damages caused by these disruptions or security breaches or to protect against disruption or security breaches in the future. We have cybersecurity insurance related to a breach event covering expenses for notification, credit monitoring, investigation, crisis management, public relations and legal advice. However, damage and claims arising from such incidents may not be covered or may exceed the amount of any insurance available, or may result in increased cybersecurity and other insurance premiums.
A major disruption or failure of our information systems could harm our business.
We depend on integrated information systems to conduct our business. We may experience operating problems with our information systems as a result of system disruptions, failures, viruses, computer hackers or other causes. Any significant disruption or slowdown of our systems could cause customers to cancel orders or cause standard business processes to become inefficient or ineffective. An extended interruption of standard business processes may affect our profitability and financial position.
Risks Relating to the Spin-off
We remain subject to continuing indemnification liabilities in connection with the Spin-off.
We entered into a separation and distribution agreement with TriMas that provides for, among other things, the principal corporate transactions required to affect the Spin-off, certain conditions to the Spin-off and provisions governing the relationship between our company and TriMas with respect to and resulting from the Spin-off. Among other things, the separation and distribution agreement provides for indemnification obligations designed to make us financially responsible for substantially all liabilities that may exist relating to our Cequent business activities, whether incurred prior to or after the Spin-off, as well as those obligations of TriMas assumed by us pursuant to the separation and distribution agreement. If we are required to indemnify TriMas under the circumstances set forth in the separation and distribution agreement, we may be subject to substantial liabilities.
Moreover, pursuant to the separation and distribution agreement, TriMas agreed to indemnify us for certain liabilities. However, third parties could seek to hold us responsible for any of the liabilities that TriMas has agreed to retain, and there can be no assurance that the indemnity from TriMas will be sufficient to protect us against the full amount of such liabilities, or that TriMas will be able to fully satisfy its indemnification obligations. Even if we ultimately succeed in recovering from TriMas any amounts for which we are held liable, we may be temporarily required to bear these liabilities ourselves. If TriMas is unable to satisfy its indemnification obligations, the underlying liabilities could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Further, TriMas’ insurers may deny coverage to us for liabilities associated with occurrences prior to the Spin-off. Even if we ultimately succeed in recovering from such insurance providers, we may be required to temporarily bear such loss of coverage.
Risks Relating to Our Common Stock and Convertible Notes
While we are currently in compliance with the NYSE's minimum market capitalization requirement, we could be at risk of being out of compliance and of the NYSE delisting our common stock, which would have an adverse impact on the trading volume, liquidity and market price of our common stock.
On April 30, 2020, we were notified by the New York Stock Exchange (the “NYSE”) that we were not in compliance with the continued listing standard set forth in Section 802.01B of the NYSE Listed Company Manual because our average market capitalization was less than $50 million over a consecutive 30 trading-day period and our stockholders’ equity was less than $50 million. We submitted a plan to the NYSE indicating our intention to seek to cure the market capitalization condition by executing a strategic plan, which resulted in improved operational and financial performance that ultimately led to a recovery of our common stock price and market capitalization and our once again being in compliance with the minimum market capitalization requirement. While we have cured this deficiency and regained compliance with this continued listing standard, there can be no assurance that we will be able to continue to comply with this and other continued listing standards of the NYSE.
A delisting of our common stock from the NYSE could negatively impact us as it would likely reduce the liquidity and market price of our common stock; reduce the number of investors willing to hold or acquire our common stock, and negatively impact our ability to access equity markets and obtain financing.
Our issuance of any additional shares of our common stock, including pursuant to the exercise of instruments convertible into or exercisable for shares of our common stock, or the issuance of additional instruments convertible into or exercisable for shares of our common stock, could materially and adversely affect the market price of our common stock.
In February 2017, we issued $125.0 million aggregate principal amount of 2.75% Convertible Senior Notes due 2022 (the “Convertible Notes”). The Convertible Notes may be settled in cash, shares of common stock or a combination of cash and shares of common stock, at our option. In the future, we may issue additional shares of our common stock or other instruments convertible into, or exchangeable or exercisable for, shares of our common stock. The Convertible Notes issuance, and any future issuance of shares of our common stock or instruments convertible into, or exercisable or exchangeable into, shares of our common stock, may materially and adversely affect the market price of our common stock.
In connection with the issuance of a term loan in 2019, we issued detachable warrants to purchase up to 6.25 million shares of our 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 addition, in connection with the issuance of our term loan in February 2021, we issued detachable warrants to purchase up to 3.91 million shares of our common stock, which can be exercised on a cashless basis over a five-year term with an exercise price of $9.00 per share. In February 2022, in connection with an amendment to our term loan, we also issued detachable warrants to purchase up to 0.98 million shares of our common stock, which, after we obtain shareholder approval, can be exercised on a cashless basis over a five-year term with an exercise price of $9.00 per share. The warrants could have a dilutive effect on our common stock to the extent that the market price per share of our common stock exceeds the strike price of the warrants.
In particular, a substantial number of shares of our common stock are reserved for issuance upon conversion of the Convertible Notes upon exercise and settlement or termination of the warrants that we entered into in connection with the Convertible Notes offering and term loans, and upon the exercise of stock options, the vesting of restricted stock awards and deferred restricted stock units to our employees. We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock. The issuance and sale of substantial amounts of shares of our common stock, or the perception that such issuances and sales may occur, could adversely affect the market price of our common stock and impair our ability to raise capital through the sale of additional equity or equity-linked securities.
The conditional conversion features of our Convertible Notes, if triggered, may adversely affect our financial condition.
In the event the conditional conversion features of the Convertible Notes are triggered, holders of the Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at their option. If one or more holders elect to convert their Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock, we would be required to make cash payments to satisfy all or a portion of our conversion obligation based on the conversion rate, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which could result in a material reduction of our net working capital.
The convertible note hedge transactions (“Convertible Note Hedges”) and warrant transactions (“Warrants”) that we entered into in connection with the offering of our Convertible Notes may affect the value of the Convertible Notes and our common stock.
In connection with the offering of the Convertible Notes, we entered into convertible note hedge transactions with certain option counterparties. The Convertible Note Hedges are expected generally to reduce the potential dilution upon conversion of the Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Convertible Notes, as the case may be. We also entered into warrant transactions with each option counterparty. The Warrants could separately have a dilutive effect on our common stock to the extent that the market price per share of our common stock exceeds the strike price of the Warrants. In connection with establishing its initial hedge of the Convertible Note Hedges and Warrants, each option counterparty or an affiliate thereof may have entered into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the Convertible Notes. This activity could increase (or reduce the size of any decrease in) the market price of our common stock or the Convertible Notes at that time. In addition, each option counterparty or an affiliate thereof may modify its hedge position by entering into or unwinding various derivatives with
respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Convertible Notes (and is likely to do so during any observation period related to a conversion of the Convertible Notes). This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the Convertible Notes. In addition, if any such Convertible Note Hedges and Warrants fail to become effective, each option counterparty may unwind its hedge position with respect to our common stock, which could adversely affect the value of our common stock and the value of the Convertible Notes.
General Risk Factors
Our stock price may be subject to significant volatility due to our own results or market trends.
If our revenue, earnings or cash flows in any quarter fail to meet the investment community’s expectations, there could be an immediate negative impact on our stock price. Our stock price could also be impacted by broader market trends and world events unrelated to our performance.
We may issue preferred stock with terms that could dilute the voting power or reduce the value of our common stock.
Our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock respecting dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of our common stock.
Anti-takeover provisions contained in our Amended and Restated Certificate of Incorporation, as amended, or our “certificate of incorporation,” and Amended and Restated Bylaws, or our “bylaws,” as well as provisions of Delaware law, could impair a takeover attempt that stockholders may consider favorable.
Our certificate of incorporation and bylaws provisions, as amended and restated, may have the effect of delaying, deferring or discouraging a prospective acquiror from making a tender offer for our common stock or otherwise attempting to obtain control of us. These provisions, among other things, establish that our board of directors fixes the number of members of the board and establish advance notice requirements for nomination of candidates for election to the board or for proposing matters that can be acted on by stockholders at stockholder meetings. To the extent that these provisions discourage takeover attempts, they could deprive stockholders of opportunities to realize takeover premiums for their shares of common stock. Moreover, these provisions could discourage accumulations of large blocks of our common stock, thus depriving stockholders of any advantages that large accumulations of common stock might provide.
As a Delaware corporation, we will also be subject to provisions of Delaware law, including Section 203 of the General Corporation Law of the State of Delaware. Section 203 prevents some stockholders holding more than 15% of our voting stock from engaging in certain business combinations unless the business combination or the transaction that resulted in the stockholder becoming an interested stockholder was approved in advance by our board of directors, results in the stockholder holding more than 85% of our voting stock, subject to certain restrictions, or is approved at an annual or special meeting of stockholders by the holders of at least 66 2/3% of our voting stock not held by the stockholder engaging in the transaction.
Any provision of our certificate of incorporation or our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
Not applicable.

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ITEM 2. PROPERTIES
Item 2. Properties
As of December 31, 2021, our material operations were conducted principally through our manufacturing and distribution facilities located in our Horizon Americas and Horizon Europe-Africa segments. All of our principal facilities are leased. Our global headquarters is located in Plymouth, Michigan. We believe that substantially all of our properties are in generally good condition and there is sufficient capacity to meet current and projected manufacturing, product development and logistics requirements and have developed a footprint strategy that supports our customers’ global needs.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. 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 11, Contingencies, included in Item 8, “Financial Statements and Supplementary Data,” within this Annual Report on Form 10-K.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
Supplementary Item. Information About Our Executive Officers
The current executive officers of Horizon are as follows:
Terrence G. Gohl. Mr. Gohl was appointed to our Board and has served as President and Chief Executive Officer since September 2019. Prior to joining the Company, Mr. Gohl served as Chief Operating Officer of International Automotive Components (“IAC”) Group, a supplier of automotive components and systems, from February 2017 to June 2018. From March 2009 to January 2017, Mr. Gohl served as President and Chief Executive Officer of Key Plastics L.L.C. (“Key Plastics”), a global manufacturer and supplier of injection molded plastic components to automotive OEMs. Prior to joining Key Plastics, from 2004 to March 2009, Mr. Gohl served in various executive management and corporate officer roles with Visteon Corporation, a global automotive leader in cockpit electronics. From 1995 to 2005, Mr. Gohl held executive positions with Tower Automotive, an automotive manufacturer, and Lear Corporation, a global leading supplier of automotive seating and e-systems. Mr. Gohl brings extensive automotive industry leadership to the Horizon Board, with deep expertise in manufacturing, operations and turnaround situations.
Dennis E. Richardville. Mr. Richardville was appointed Chief Financial Officer on March 16, 2020. Prior to this appointment, Mr. Richardville served as Vice President and Corporate Treasurer of the Company since January 2020. Prior to joining the Company, Mr. Richardville served as chief financial officer of Dura Automotive Systems, LLC, a global Tier One automotive supplier specializing in the design, engineering and manufacturing of advanced mobility system solutions, from August 2019 to October 2019. Mr. Richardville served as executive vice president and chief financial officer of IAC, a leading global supplier of automotive components and systems, including interior and exterior trim, from April 2012 to December 2018. From 2007 to 2012, Mr. Richardville served as vice president and global corporate controller for IAC. Prior to joining IAC, Mr. Richardville held various finance positions with Lear Corporation, Wesley Industries, Inc., MSX International, Inc. and Hayes Lemmerz International Inc. from 1990 to 2007.
Matthew J. Meyer. Mr. Meyer was appointed Chief Accounting Officer on December 12, 2019. Mr. Meyer also held the role of principal financial officer from March 3, 2020 until March 16, 2020. Mr. Meyer was previously Corporate Controller for Horizon Global since November 2018. Prior to joining the Company, Mr. Meyer, served in a variety of management positions for Joyson Safety Systems, a global leader in mobility safety providing safety-critical components, systems and technology to automotive and non-automotive markets, from December 2015 to November 2018, and ultimately served as corporate controller. From January 2015 to December 2015, Meyer served as director, accounting and reporting for Federal-Mogul Holdings Corporation, a developer, manufacturer and supplier of products for automotive, commercial, aerospace, marine, rail and off-road vehicles; and industrial, agricultural and power-generation applications (“Federal-Mogul”). Prior to his position with Federal-Mogul, from September 2011 to January 2015, Mr. Meyer served in a variety of management positions of increasing responsibility, ultimately serving as compliance director for Kelly Services Inc., a global leader in providing workforce solutions, including outsourcing and consulting services. Meyer also served in a variety of positions leading up to an audit manager position with KPMG, LLP, a global network of professional firms providing audit, tax and advisory services, from January 2007 to September 2011.
Matthew T. Pollick. Mr. Pollick has served as our Chief Operating Officer since November 11, 2019. Before joining Horizon, Mr. Pollick served as Executive Vice President of Industrial Management for Gestamp North America, a company dedicated to the design, development and manufacture of metal automotive components, from September 2016 to November 2019. From April 2014 to September 2016, Mr. Pollick was a general manager of Bowling Green Metalforming, a subsidiary of Magna International, a leading global automotive mobility technology and automotive parts supplier (“Magna”). Prior to joining Magna, from April 2002 to April 2014, Mr. Pollick held roles of increasing responsibility at Tower International, a leading manufacturer of engineered automotive structural metal components and assemblies, ultimately serving as its Director of Operations.
James F. Sistek. Mr. Sistek has served as our Chief Administrative Officer since December 9, 2019. Prior to joining Horizon, Mr. Sistek served as senior vice president business operations for Superior Industries International, Inc. (“Superior”), a Tier 1 automotive supplier of aluminum wheels, from August 2014 to January 2019. During his tenure at Superior, Mr. Sistek was directly responsible for product development and launch, supply chain and logistics, quality, information technology and served as the executive lead on a corporate-wide overhaul of the operating model. From January 2013 to August 2014, Mr. Sistek served as president and founder of Infologic, Inc. (“Infologic”), a consulting services company specializing in the optimization of business operations, where he streamlined business processes, supported program development and launch programs, and provided complete technology assessments for Tier 1 suppliers and IT service providers. Prior to forming Infologic, from October 2005 to January 2013, Mr. Sistek held various leadership positions at Visteon Corporation, a global automotive electronics supplier, ultimately serving as vice president shared services and chief information officer from 2009 to 2013.
Jay Goldbaum. Mr. Goldbaum has served as our General Counsel, Chief Compliance Officer and Corporate Secretary since November 13, 2017. Mr. Goldbaum served as Legal Director, Chief Compliance Officer and Corporate Secretary since June 30, 2015 in connection with the spin-off from TriMas Corporation (“TriMas”). From January 14, 2015 through June 29, 2015, Mr. Goldbaum served as Vice President, Corporate Secretary and a director of Horizon. Mr. Goldbaum was previously associate general counsel-commercial law for TriMas beginning in January 2014. Mr. Goldbaum joined TriMas in January 2012 and held the position of legal counsel. Before joining TriMas, Mr. Goldbaum was an associate in the corporate and litigation practice groups at the law firm of Jaffe, Raitt, Heuer & Weiss, P.C. from September 2007 to August 2011.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock, par value $0.01 per share, is listed for trading on the NYSE under the symbol “HZN.” As of March 4, 2022, there were 186 holders of record of our common stock.
Horizon does not intend to declare and pay any dividends on its common stock for the foreseeable future. The Company currently intends to invest its future earnings, if any, to fund its growth, to develop its business, for working capital needs and for general corporate purposes. Any payment of dividends will be at the discretion of Horizon’s board of directors and will depend upon various factors then existing, including earnings, financial condition, results of operations, capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by applicable law, general business conditions and other factors that Horizon’s board of directors may deem relevant.
Issuer Purchases of Equity Securities
Not applicable.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. 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 Annual Report on Form 10-K. 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 Item 8, “Financial Statements and Supplementary Data” within this Annual Report on Form 10-K.
Overview
Headquartered in Plymouth, Michigan, Horizon Global Corporation and its consolidated subsidiaries (“Horizon,” “Horizon Global,” “we,” “our,” 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 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 implementation of operational improvement initiatives, 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 efficiently manage our cost structure 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, including those related to the global microchip shortage, ongoing global shipping container and other transportation and logistics constraints, as well as 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 15, Segment Information, included in Item 8, “Financial Statements and Supplementary Data,” within this Annual Report on Form 10-K 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 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 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 extinguishment of debt, 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.
Adjusted EBITDA for our operating segments for the twelve months ended December 31, 2021 is as follows:
Twelve Months Ended
December 31, 2021
Horizon Americas Horizon Europe-Africa Corporate Consolidated
(dollars in thousands)
Net loss attributable to Horizon Global $ (31,720)
Net loss attributable to noncontrolling interest (1,400)
Net loss $ (33,120)
Interest expense 27,970
Income tax benefit (160)
Depreciation and amortization 22,000
EBITDA $ 46,040 $ 1,450 $ (30,800) $ 16,690
Net loss attributable to noncontrolling interest - 1,400 - 1,400
Severance 50 - - 50
Restructuring, relocation and related business disruption costs (720) 80 1,060 420
Loss on extinguishment of debt - - 11,650 11,650
Non-cash stock compensation - - 3,520 3,520
Loss on business divestitures and other assets 3,450 1,310 190 4,950
Debt issuance costs - 120 340 460
Gain on extinguishment of debt - - (7,530) (7,530)
Unrealized foreign currency remeasurement costs 420 2,540 1,100 4,060
Adjusted EBITDA $ 49,240 $ 6,900 $ (20,470) $ 35,670
Adjusted EBITDA for our operating segments for the twelve months ended December 31, 2020 is as follows:
Twelve Months Ended
December 31, 2020
Horizon Americas Horizon Europe-Africa Corporate Consolidated
(dollars in thousands)
Net loss attributable to Horizon Global $ (36,560)
Net loss attributable to noncontrolling interest (1,420)
Net loss $ (37,980)
Interest expense 31,680
Income tax benefit (1,580)
Depreciation and amortization 22,910
EBITDA $ 34,030 $ 6,610 $ (25,610) $ 15,030
Net loss attributable to noncontrolling interest - 1,420 - 1,420
Loss from discontinued operations, net of tax - - 500 500
Severance 530 (360) 20 190
Restructuring, relocation and related business disruption costs 1,700 170 740 2,610
Non-cash stock compensation - - 3,000 3,000
Loss (gain) on business divestitures and other assets 1,480 (180) 20 1,320
Board transition support - - (170) (170)
Product liability and litigation claims - 1,510 - 1,510
Debt issuance costs - 60 1,870 1,930
Unrealized foreign currency remeasurement costs 690 (550) (1,070) (930)
Adjusted EBITDA $ 38,430 $ 8,680 $ (20,700) $ 26,410
Segment Information
A summary of segment financial information for our operating segments for the twelve months ended December 31, 2021 and 2020 is as follows:
Twelve Months Ended December 31, 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 $ 456,410 58.4 % $ 382,380 57.8 % $ 74,030 19.4 % $ 74,480 19.5 %
Horizon Europe-Africa 325,710 41.6 % 278,850 42.2 % 46,860 16.8 % 31,560 11.3 %
Total $ 782,120 100.0 % $ 661,230 100.0 % $ 120,890 18.3 % $ 106,040 16.0 %
Gross Profit
Horizon Americas $ 112,120 24.6 % $ 95,850 25.1 % $ 16,270 17.0 % $ 15,960 16.7 %
Horizon Europe-Africa 30,460 9.4 % 24,700 8.9 % 5,760 23.3 % 4,020 16.3 %
Total $ 142,580 18.2 % $ 120,550 18.2 % $ 22,030 18.3 % $ 19,980 16.6 %
Selling, General and Administrative Expense
Horizon Americas $ 69,540 15.2 % $ 67,900 17.8 % $ 1,640 2.4 % $ 1,510 2.2 %
Horizon Europe-Africa 40,990 12.6 % 33,090 11.9 % 7,900 23.9 % 6,120 18.5 %
Corporate 24,830 N/A 26,470 N/A (1,640) (6.2) % (1,640) (6.2) %
Total $ 135,360 17.3 % $ 127,460 19.3 % $ 7,900 6.2 % $ 5,990 4.7 %
Operating Profit (Loss)
Horizon Americas $ 42,580 9.3 % $ 27,950 7.3 % $ 14,630 52.3 % $ 13,990 50.1 %
Horizon Europe-Africa (10,530) (3.2) % (8,390) (3.0) % (2,140) (25.5) % (2,100) (25.0) %
Corporate (24,830) N/A (26,470) N/A 1,640 6.2 % 1,640 6.2 %
Total $ 7,220 0.9 % $ (6,910) (1.0) % $ 14,130 204.5 % $ 13,530 195.8 %
Capital Expenditures
Horizon Americas $ 7,850 1.7 % $ 3,670 1.0 % $ 4,180 113.9 % $ 4,160 113.4 %
Horizon Europe-Africa 12,610 3.9 % 9,640 3.5 % 2,970 30.8 % 2,520 26.1 %
Corporate - N/A - N/A - - % - - %
Total $ 20,460 2.6 % $ 13,310 2.0 % $ 7,150 53.7 % $ 6,680 50.2 %
Depreciation of Property and Equipment and Amortization of Intangibles
Horizon Americas $ 7,520 1.6 % $ 8,420 2.2 % $ (900) (10.7) % $ (900) (10.7) %
Horizon Europe-Africa 14,300 4.4 % 14,280 5.1 % 20 0.1 % (550) (3.9) %
Corporate 180 N/A 210 N/A (30) (14.3) % (30) (14.3) %
Total $ 22,000 2.8 % $ 22,910 3.5 % $ (910) (4.0) % $ (1,480) (6.5) %
Adjusted EBITDA
Horizon Americas $ 49,240 10.8 % $ 38,430 10.1 % $ 10,810 28.1 % N/A N/A
Horizon Europe-Africa 6,900 2.1 % 8,680 3.1 % (1,780) (20.5) % N/A N/A
Corporate (20,470) N/A (20,700) N/A 230 1.1 % N/A N/A
Total $ 35,670 4.6 % $ 26,410 4.0 % $ 9,260 35.1 % N/A N/A
Results of Operations
Twelve Months Ended December 31, 2021 Compared with Twelve Months Ended December 31, 2020
Consolidated net sales increased $120.9 million, or 18.3%, to $782.1 million during the twelve months ended December 31, 2021, as compared to $661.2 million during the twelve months ended December 31, 2020. The increase was driven by higher net sales in Horizon Americas and Horizon Europe-Africa primarily attributable to the impacts of economic uncertainty and business disruptions of the COVID-19 pandemic that impacted the Company in 2020, most significantly in the first and second quarters. Net sales for Horizon Americas increased $74.0 million, driven by increases in sales volumes as well as pricing recovery initiatives driven by commodity and input cost increases. Net sales for Horizon Europe-Africa increased $46.9 million, driven by increases in sales volumes and pricing recovery initiatives as well as favorable currency translation.
Gross profit margin (gross profit as a percentage of net sales) was 18.2% during the twelve months ended December 31, 2021 and 2020. Gross profit margin in 2021 as compared to 2020 was impacted by higher net sales in Horizon Americas and Horizon Europe-Africa as detailed above, coupled with favorable net sales channel mix and was partially offset by unfavorable cost performance, primarily attributable to unfavorable material, supply chain and other manufacturing input costs associated with global macroeconomic factors experienced during 2021.
Selling, general and administrative (“SG&A”) expenses increased $7.9 million, primarily attributable to $3.3 million of higher personnel and other variable compensation costs across the Company, driven primarily by temporary salary reductions in the U.S. and the Company’s participation in certain payroll reimbursement programs during 2020 in response to the impacts of the COVID-19 pandemic. The increase was also due to $3.8 million of higher outside professional fees and other administrative costs across the Company. Unfavorable currency translation in Horizon Europe-Africa of $1.8 million also contributed to the increase.
Operating margin (operating profit (loss) as a percentage of net sales) was 0.9% and (1.0)% during the twelve months ended December 31, 2021 and 2020, respectively. Operating profit improved $14.1 million, or 204.5%, to an operating profit of $7.2 million during 2021, as compared to an operating loss of $(6.9) million during 2020. Improved operating profit and operating margin were primarily due to the operational results detailed above.
Other expense, net increased $7.9 million to $8.4 million during the twelve months ended December 31, 2021, as compared to $0.5 million during the twelve months ended December 31, 2020, primarily attributable to $(4.1) million of foreign currency loss during 2021 as compared to $0.9 million of foreign currency gain during 2020. The increase was also due 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 5, Goodwill and Other Intangible Assets, in Item 8, “Financial Statements and Supplementary Data,” within this Annual Report on Form 10-K for additional information of the sale of the Company’s Brazil business.
Interest expense decreased $3.7 million to $28.0 million during the twelve months ended December 31, 2021, as compared to $31.7 million during the twelve months ended December 31, 2020, primarily as a result of the Company’s February 2021 refinancing, which resulted in a new term loan agreement that 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 twelve months ended December 31, 2021. Additionally, during 2021, the Company also incurred an $11.7 million loss on debt extinguishment related to the termination of the existing term loan agreement resulting from the February 2021 refinancing and a $7.5 million gain on debt extinguishment related to forgiveness of the Company’s PPP Loan, as defined below. Refer to Note 9, Long-term Debt, in Item 8, “Financial Statements and Supplementary Data,” within this Annual Report on Form 10-K for additional information.
The effective income tax rate for the twelve months ended December 31, 2021 and 2020 was 0.5% and 4.0%, respectively. The lower effective income tax rate for both periods is attributable to the Company’s valuation allowance recorded in the U.S. and several foreign jurisdictions, which resulted in no income tax benefit recognized for jurisdictional pretax losses, coupled with jurisdictional income mix.
Net loss from continuing operations improved $4.4 million to a net loss of $(33.1) million for the twelve months ended December 31, 2021, compared to a net loss from continuing operations of $(37.5) million for the twelve months ended December 31, 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 twelve months ended December 31, 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:
Twelve Months Ended December 31, Change
2021 2020 $ %
Net Sales
Aftermarket $ 136,430 $ 114,750 $ 21,680 18.9 %
Automotive OEM 99,120 77,280 21,840 28.3 %
Automotive OES 15,500 8,310 7,190 86.5 %
Retail 105,310 100,660 4,650 4.6 %
E-commerce 63,340 53,850 9,490 17.6 %
Industrial 36,710 27,480 9,230 33.6 %
Other - 50 (50) (100.0) %
Total $ 456,410 $ 382,380 $ 74,030 19.4 %
Net sales increased $74.0 million, or 19.4%, to $456.4 million during the twelve months ended December 31, 2021, as compared to $382.4 million during the twelve months ended December 31, 2020, primarily attributable to higher sales volumes. The increased volumes are primarily attributable to the impacts of economic uncertainty and business disruptions of the COVID-19 pandemic that impacted the Company in 2020, most significantly in the first and second quarters. Net sales also increased by $38.8 million due to pricing recovery initiatives implemented, primarily in the aftermarket, OE, retail and e-commerce sales channels, to partially recover increased material and input costs. The increase was partially offset by a $1.7 million increase in sales returns and allowances.
Horizon Americas’ gross profit increased $16.2 million, or 17.0%, to $112.1 million, or 24.6% of net sales, during the twelve months ended December 31, 2021, as compared to $95.9 million, or 25.1% of net sales, during the twelve months ended December 31, 2020. The increase in gross profit is primarily attributable to the increase in net sales detailed above, partially offset by unfavorable material, supply chain and other manufacturing input costs, net of customer pricing recoveries, attributable to significant commodity and logistics cost increases in the Company’s supply chain due to global macroeconomic factors. The decrease in gross profit margin was primarily driven by a significant rise in inputs costs that impacted business performance, especially in the third and fourth quarters of 2021, that were not able to be fully passed through to our customers during 2021, given there is generally a delay in such recoveries due to market pressures and restrictions within certain customer contracts that require agreement.
SG&A expenses increased $1.6 million to $69.5 million, or 15.2% of net sales, during the twelve months ended December 31, 2021, as compared to $67.9 million, or 17.8% of net sales, during the twelve months ended December 31, 2020. The increase in SG&A is primarily attributable to the following:
-$3.5 million of higher outside professional fees and other administrative costs;
-$1.2 million of 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:
-$1.5 million of lower depreciation and amortization.
Horizon Americas’ operating profit increased $14.6 million to $42.6 million, or 9.3% of net sales, during the twelve months ended December 31, 2021, as compared to $28.0 million, or 7.3% of net sales, during the twelve months ended December 31, 2020. Improved operating profit and operating margin were primarily due to the operational results detailed above.
Horizon Americas’ Adjusted EBITDA increased $10.8 million to $49.2 million during the twelve months ended December 31, 2021, as compared to Adjusted EBITDA of $38.4 million during the twelve months ended December 31, 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:
Twelve Months Ended December 31, Change
2021 2020 $ %
Net Sales
Aftermarket $ 84,860 $ 73,010 $ 11,850 16.2 %
Automotive OEM 160,270 149,850 10,420 7.0 %
Automotive OES 69,930 50,290 19,640 39.1 %
E-commerce 6,580 1,570 5,010 319.1 %
Industrial 1,980 1,670 310 18.6 %
Other 2,090 2,460 (370) (15.0) %
Total $ 325,710 $ 278,850 $ 46,860 16.8 %
Net sales increased $46.8 million, or 16.8%, to $325.7 million during the twelve months ended December 31, 2021, as compared to $278.9 million during the twelve months ended December 31, 2020, primarily attributable to higher sales volumes. The increased volumes are primarily attributable to the impacts of economic uncertainty and business disruptions of the COVID-19 pandemic that impacted the Company in 2020, most significantly in the first and second quarters. Net sales also increased by $8.6 million due to pricing recovery initiatives implemented, primarily in the OE sales channels, to recover increased material and input costs. The increase was also due to $15.3 million of favorable currency translation.
Horizon Europe-Africa’s gross profit increased $5.8 million, or 23.3%, to $30.5 million, or 9.4% of net sales, during the twelve months ended December 31, 2021, from $24.7 million, or 8.9% of net sales, during the twelve months ended December 31, 2020. The increase in gross profit and gross profit margin is primarily attributable to the increase in net sales detailed above, which included a sales mix shift to higher margin products. The gross profit and gross profit margin increase was partially offset by unfavorable material, supply chain and other manufacturing input cost, net of customer pricing increases, coupled with the inability to flex costs efficiently based on OEM customer production schedule changes that negatively impacted business performance, especially in the third and fourth quarters of 2021. The input costs increases were not able to be fully passed through to our customers during 2021, given there is generally a delay in such recoveries due to market pressures and restrictions within certain customer contracts that require agreement.
SG&A expenses increased $7.9 million to $41.0 million, or 12.6% of net sales, during the twelve months ended December 31, 2021, as compared to $33.1 million, or 11.9% of net sales, during the twelve months ended December 31, 2020. The increase in SG&A was primarily attributable to the cost saving initiatives implemented by the Company and corresponding savings realized during 2020 in response to the impacts of the COVID-19 pandemic. As a result, the increase in SG&A is attributable to the following:
-$2.2 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;
-$1.5 million of higher outside professional fees and other administrative costs; and
-$1.8 million of unfavorable currency translation.
Horizon Europe-Africa’s operating loss increased $2.1 million to an operating loss of $(10.5) million, or (3.2)% of net sales, during the twelve months ended December 31, 2021, as compared to an operating loss of $(8.4) million, or (3.0)% of net sales, during the twelve months ended December 31, 2020. The changes in operating loss and operating margin were primarily due to the operational results detailed above.
Horizon Europe-Africa’s Adjusted EBITDA decreased $1.8 million to $6.9 million during the twelve months ended December 31, 2021, as compared to Adjusted EBITDA of $8.7 million during the twelve months ended December 31, 2020. Adjusted EBITDA declined primarily due to the operational results detailed above.
Corporate Expenses
Corporate expenses included in operating loss decreased $1.7 million to $24.8 million during the twelve months ended December 31, 2021, as compared to $26.5 million during the twelve months ended December 31, 2020. The decrease was primarily attributable to the following:
-$1.2 million of 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 $(20.5) million during the twelve months ended December 31, 2021, as compared to Adjusted EBITDA of $(20.7) million during the twelve months ended December 31, 2020. Adjusted EBITDA improved primarily due to higher discretionary and administrative support costs, partially offset by lower personnel and compensation costs.
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 December 31, 2021 and 2020, we had $8.2 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.
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. As of December 31, 2021, the Company had availability of $27.4 million under the Revolving Credit Facility and $3.6 million of cash and cash equivalents in the United States.
As of December 31, 2021 and 2020, total cash and availability was $39.2 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 offered forgiveness if certain conditions are met as well as entering into or modifying other arrangements. A summary of these actions is described below.
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 was amended in July 2021 to make any unforgiven portion payable over five years on a monthly basis. 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.
During the fourth quarter of 2021, the Company’s application of loan forgiveness with PNC and the Small Business Administration was approved for forgiveness of $7.4 million of principal and $0.1 million of interest. The $1.3 million unforgiven portion of the loan has an interest rate of 1.0% per annum and will be repaid on a monthly basis through April 2025.
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 for at least the next twelve months and for the foreseeable future thereafter. 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 twelve months ended December 31, 2021 and 2020 was $(42.7) million and $39.1 million, respectively.
During the twelve months ended December 31, 2021, the Company generated $13.3 million in cash flows, based on the reported net loss of $(33.1) million and after considering the effects of non-cash items related to depreciation, amortization of intangible assets, gain and 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 twelve months ended December 31, 2020, the Company generated $7.4 million based on the reported net loss of $(37.5) million and after considering the effects of similar non-cash items.
Changes in operating assets and liabilities used $(56.0) million and sourced $31.7 million of cash during the twelve months ended December 31, 2021 and 2020, respectively.
Changes in accounts receivable resulted in a net source of cash of $2.1 million during the twelve months ended December 31, 2021. The decrease in accounts receivable during 2021 was driven primarily by lower net sales in the fourth quarter of 2021 as compared to the fourth quarter of 2020. During the twelve months ended December 31, 2020, the increase in accounts receivables resulted in a net use of cash of $(12.2) million. The increase in accounts receivable during 2020 was driven primarily by higher net sales in the fourth quarter of 2020 as compared to the prior year, partially offset by pull ahead collection efforts in the fourth quarter of 2020.
Changes in inventory resulted in a net use of cash of $(52.3) million and source of $24.2 million during the twelve months ended December 31, 2021 and 2020, respectively. The increase in inventory during 2021 was driven primarily by global macroeconomic factors experienced during the period, including increased costs of raw materials, such as steel; constraints on shipping container availability and port congestion resulting in higher inventory costs. The decrease in inventory during the twelve months ended December 31, 2020 was due to improved inventory management coupled with an extended selling season in the last half of the year.
Changes in prepaid expenses and other assets resulted in a net use of cash of $(0.7) million and $(4.9) million during the twelve months ended December 31, 2021 and 2020, respectively. The increase in prepaid expenses and other assets during 2021 and 2020 was primarily due to the mix of invoicing from vendors and subsequent payment.
Changes in accounts payable and accrued liabilities resulted in a use of cash of $(5.2) million and a source of cash $24.6 million during the twelve months ended December 31, 2021 and 2020, respectively. The use of cash during 2021, as compared to the source of cash during 2020, was primarily due to the timing of payments made to suppliers, mix of vendors and related terms coupled with improved working capital management during 2020 as compared to the prior year.
Cash Flows - Investing Activities
Net cash used for investing activities during the twelve months ended December 31, 2021 was $(20.4) million, as compared to net cash used for investing activities of $(13.2) million during the twelve months ended December 31, 2020.
During the twelve months ended December 31, 2021, capital expenditures were $(20.5) million as compared to $(13.3) million during the twelve months ended December 31, 2020, which related to growth, capacity and productivity-related projects within Horizon Americas and Horizon Europe-Africa. The increase in capital expenditures was primarily due to the Company’s curtailment or retiming of certain projects during 2020, in response to the impacts and business disruptions of the COVID-19 pandemic.
We expect our capital spending in the twelve months ended December 31, 2022 to be $27.0 million, primarily related to support for product development, growth and maintenance for the business.
Cash Flows - Financing Activities
Net cash provided by financing activities was $30.3 million and $12.7 million during the twelve months ended December 31, 2021 and 2020, respectively.
During the twelve months ended December 31, 2021 and 2020, net proceeds from the Revolving Credit Facility, net of issuance costs, were $33.8 million and $21.9 million, respectively. During the twelve months ended December 31, 2020, net repayments on the Company’s former asset based lending facility totaled $(19.9) million.
During the twelve months ended December 31, 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 twelve months ended December 31, 2021, repayments of borrowings on the Company’s former term loan, including transaction fees, were $(94.9) million.
During the twelve months ended December 31, 2020, proceeds from the Company’s PPP Loan were $8.7 million.
Factoring Arrangements
The Company has factoring arrangements with financial institutions to sell certain accounts receivable. During the twelve months ended December 31, 2021 and 2020, total receivables sold under certain non-recourse factoring arrangements were $279.9 million and $237.1 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 this Annual Report on Form 10-K for additional information.
Our Debt and Other Commitments
We and certain of our subsidiaries are party to the asset-based Revolving Credit Facility governed by the Loan Agreement, each as defined and described above. The Revolving Credit Facility provides for $75.0 million of funding, which has been subsequently increased as described below, on a revolving basis, subject to borrowing base availability, and matures on March 13, 2024. As of December 31, 2021, there was $58.1 million outstanding on the Revolving Credit Facility with interest payable in cash at an interest rate of London Interbank Offered Rate (“LIBOR”) plus 4.00% per annum, subject to a 1.00% LIBOR floor.
In April 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 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 September 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 to $95.0 million. The amendment also increased the Company’s ability to borrow against receivables and sub-limits relating to in-transit inventory and inventory located in the Company’s Mexico facilities. The increased borrowing capacity against receivables and inventory was effective through December 31, 2021.
On December 30, 2021, the Company entered into an amendment to the Loan Agreement, that among other modifications, permanently increased the Company’s inventory sub-limit and temporarily increased the Company’s ability to borrow against
receivables, in-transit inventory as well as inventory located in the Company’s Mexico facilities, which is effective through March 31, 2022. The amendment also amended the interest rate of the Revolving Credit Facility effective March 31, 2022, to be 3.50% to 4.00% per annum, subject to certain conditions defined in the Loan Agreement. The amendment also extended the term of the Revolving Credit Facility by one year, and all borrowings under the Loan Agreement mature on March 13, 2024.
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 December 31, 2021, there was $100.0 million outstanding on the Senior Term Loan Credit Agreement bearing cash interest at the interest rate of LIBOR plus 7.50%, subject to a 1.00% LIBOR floor.
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. As a result of the Company’s Senior Term Loan Credit Agreement, which includes the delayed draw term loan facility, and the Series B Preferred Stock commitment letter executed in February 2022, the Company has the ability and intent to repay the Convertible Notes when they mature on July 1, 2022. The Senior Term Loan Credit Agreement, delayed draw term loan facility and Series B Preferred Stock commitment letter are each defined and described below.
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 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.
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 an amendment to the Company’s First Lien Term Loan Agreement and Second Lien Term Loan Agreement (the “Replacement Term Loan Amendment”). The Replacement Term Loan Amendment provided a replacement term loan (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.
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 Replacement Term Loan. As a result of the repayment, the credit agreement governing the Company’s Replacement Term Loan was terminated and is no longer in effect.
Senior Term Loan Credit Agreement
In February 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. The Senior Term Loan Credit Agreement provides for an initial term loan facility (the “Senior Term Loan”) 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, 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.
Senior Term Loan Credit Agreement Amendment
On February 10, 2022, the Company entered into an amendment to its Senior Term Loan Credit Agreement (the “Senior Term Loan Credit Agreement Amendment”) with Atlantic Park. The Senior Term Loan Credit Agreement Amendment provides for a $35.0 million draw on the Company’s existing delayed draw term loan facility under the Senior Term Loan Credit Agreement and allows the net proceeds to be used for working capital purposes and to fund low-cost country expansion in the Company’s Horizon Europe-Africa operating segment. All amounts drawn under the delayed draw facility are governed by the existing terms of the Company’s Senior Term Loan Credit Agreement.
Pursuant to the Senior Term Loan Credit Agreement Amendment, the Company issued warrants to Atlantic Park to purchase up to 975,000 shares of the Company’s common stock, with an exercise price of $9.00 per share. The warrants are exercisable at any time prior to February 10, 2027, provided that the warrants may not be exercised and shares of common stock may not be issued pursuant to the warrants unless and until the Company obtains shareholder approval permitting the issuance of such shares of common stock in accordance with the rules of the New York Stock Exchange.
On February 10, 2022, the Company executed a commitment letter with Corre Partners Management L.L.C. (“Corre”) to issue, solely at the Company’s option, up to $40.0 million of Series B Preferred Stock. To the extent issued, the net proceeds of the Series B Preferred Stock may be used to repay up to $35.0 million of the Company’s outstanding Convertible Notes at maturity and, following such repayment, for general corporate purposes. If issued, the Series B Preferred Stock would accrue dividends in kind at a rate of 11.0% per annum. The Series B Preferred Stock would be perpetual, but subject to voluntary redemption by the Company at its option and subject to mandatory redemption upon a change in control or the one-year anniversary of the maturity of the Senior Term Loan. Additionally, if issued, if the Series B Preferred Stock is not redeemed after the occurrence of certain events, it would be convertible into shares of the Company’s common stock, at the option of Corre and subject to shareholder approval. The commitment letter expires on July 1, 2022.
The Company estimates it incurred $1.4 million of debt issuance costs and fees associated with the above transactions. The transactions will be accounted for in the first quarter of 2022.
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 December 31, 2021, 1-Month LIBOR and 3-Month LIBOR approximated 0.10% and 0.21%, respectively.
The Company is in compliance with all of its financial covenants as of December 31, 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 twelve months ended December 31, 2021 and 2020 was $14.5 million
and $15.0 million, respectively. As of December 31, 2021, we had obligations for future lease payments of $57.7 million. 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 9, Long-term Debt, and Note 10, Leases, in Item 8, “Financial Statements and Supplementary Data,” included within this Annual Report on Form 10-K 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 Supplemental Analysis and Segment Information 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:
Twelve Months Ended December 31,
2021 2020 Change
(dollars in thousands)
Net loss attributable to Horizon Global $ (31,720) $ (36,560) $ 4,840
Net loss attributable to noncontrolling interest (1,400) (1,420) 20
Net loss $ (33,120) $ (37,980) $ 4,860
Interest expense 27,970 31,680 (3,710)
Income tax benefit (160) (1,580) 1,420
Depreciation and amortization 22,000 22,910 (910)
EBITDA $ 16,690 $ 15,030 $ 1,660
Net loss attributable to noncontrolling interest 1,400 1,420 (20)
Loss from discontinued operations, net of income tax - 500 (500)
EBITDA from continuing operations $ 18,090 $ 16,950 $ 1,140
Adjustments pursuant to Senior Term Loan Agreement:
Losses on sale of receivables 960 1,410 (450)
Debt extinguishment losses 11,650 - 11,650
Non-cash equity grant expenses 3,520 3,000 520
Other non-cash expenses or losses (gains) 6,740 (810) 7,550
Lender agent related professional fees, costs, and expenses (a)
180 380 (200)
Non-recurring expenses or costs (b)
620 5,410 (4,790)
Non-cash losses on asset sales 1,470 90 1,380
Debt extinguishment gains (7,530) - (7,530)
Other (30) (20) (10)
Adjusted EBITDA $ 35,670 $ 26,410 $ 9,260
Non-recurring expense limitation (a) (b)
N/A N/A N/A
Other 30 20 10
Consolidated EBITDA $ 35,700 $ 26,430 $ 9,270
(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 credit agreements do not require that we maintain a credit rating.
Outlook
Our business remains susceptible to macroeconomic conditions that could adversely affect our results, including the global microchip shortage and ongoing global shipping container and other transportation and logistics constraints. These recent macroeconomic factors 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 have also experienced increased costs for certain raw materials, including steel, and while the Company endeavors to recover incremental input costs through pricing recovery initiatives, the recoveries generally occur over time and are not guaranteed. However, the trend of customer orders in the economies that most significantly affect our demand has been strong, including the United States and Europe. We also continue to monitor the ongoing COVID-19 pandemic and potential impacts to our operations, employees, customers and other stakeholders, as well as prioritizing the health and safety of our employees. We continue to monitor these macroeconomic factors 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 our business plan and operational improvement initiatives in 2022. These initiatives were put in place to streamline and simplify the Company’s 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 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 Item 8, “Financial Statements and Supplementary Data,” within this Annual Report on Form 10-K.
Critical Accounting Estimates
The following discussion of accounting estimates is intended to supplement the accounting policies presented in Note 3, Summary of Significant Accounting Policies included in Item 8, “Financial Statements and Supplementary Data,” within this Annual Report on Form 10-K. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. 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.
Revenue Recognition. Revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.
Sales Related Accruals. Net sales are comprised of gross revenues less estimates of expected returns, trade discounts and customer allowances, which include incentives for items such as cooperative advertising agreements, volume discounts and other supply agreements in connection with various customer programs. On at least a quarterly basis, we perform detailed reviews of our sales related accruals by evaluating specific customer contractual commitments, assessing current incentive programs and other relevant information in order to assess the adequacy of the reserve. Reductions to revenue and estimated accruals are recorded in the period in which revenue is recognized.
Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts to reflect management’s best estimate of probable credit losses inherent in our accounts receivable balances. Determination of the allowances requires management to exercise judgment about the timing, frequency and severity of credit losses that could materially affect the allowances for
doubtful accounts and, therefore, net income. The level of the allowance is based on quantitative and qualitative factors including historical loss experience, delinquency trends, economic conditions and customer credit risk. We perform detailed reviews of our accounts receivable portfolio on at least a quarterly basis to assess the adequacy of the allowance. Over the past two years, the allowance for doubtful accounts was 3.4% to 3.0% of gross accounts receivable. We do not believe that significant credit risk exists due to our diverse customer base.
Impairment of Long-Lived Assets and Definite-Lived Intangible Assets. We review the Company’s financial performance for indicators of impairment on at least a quarterly basis. In reviewing for impairment indicators, we also consider events or changes in circumstances such as business prospects, customer retention, market trends, potential product obsolescence, competitive activities and other economic factors. An impairment loss is recognized when the carrying value of an asset group exceeds the future net undiscounted cash flows expected to be generated by that asset group. The impairment loss recognized is the amount by which the carrying value of the asset group exceeds its fair value.
Goodwill and Indefinite-Lived Intangibles. 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, as of December 31, 2021, the Company had no recorded goodwill and no annual goodwill impairment test was required in 2021.
The Company performed an annual goodwill impairment test as of October 1, 2020, for the Horizon Americas reporting unit. The assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value.
We review indefinite-lived intangible assets for impairment annually or more frequently if events or changes in circumstances indicate the assets might be impaired. The Company first performs a qualitative assessment of whether it is more likely than not that an indefinite-lived intangible asset is impaired. If necessary, the Company then performs a quantitative impairment test by comparing the estimated fair value of the asset, based upon its forecasted cash flows using the relief from royalty method, to its carrying value. The Company performed an annual indefinite-lived asset impairment test as of October 1, 2020. The assessment indicated that it was more likely than not that the fair value of the indefinite-lived intangible assets exceeded their carrying value.
See Note 5, Goodwill and Other Intangible Assets included in Item 8, “Financial Statements and Supplementary Data,” within this Annual Report on Form 10-K for further information.
Income Taxes. We compute income taxes using the asset and liability method, whereby deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities and for operating loss and tax credit carryforwards. Under this method, changes in tax rates and laws are recognized in income in the period such changes are enacted. We determine valuation allowances based on an assessment of positive and negative evidence on a jurisdiction-by-jurisdiction basis and are utilized to reduce deferred tax assets to the amount more likely than not to be realized. To make this assessment, we evaluate historical operating results, the existence of cumulative losses in the most recent fiscal years, expectations for future pretax operating income, the time period over which our temporary differences will reverse and the implementation of feasible and prudent tax planning strategies. Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Changes in existing tax laws could also affect actual tax results and the valuation of deferred tax assets over time. We record interest and penalties related to uncertain tax positions in income tax expense.
We are also currently subject to tax controversies in various jurisdictions, and these jurisdictions may assess additional income tax liabilities against us. Developments in audits could have a material effect on our operating results or cash flows in the period for which that development occurs, as well as for subsequent periods. We regularly assess the likelihood of an adverse outcome resulting from these proceedings to determine the adequacy of our tax accruals. Although we believe our estimates are reasonable, the final outcome of audits could be materially different from our historical income tax provisions and accruals.
Refer to Note 16, Income Taxes, to the consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K for additional information.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Horizon Global Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Horizon Global Corporation and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, cash flows, and shareholders' equity, for each of the two years in the period ended December 31, 2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Sales Related Accruals - Refer to Note 3 to the consolidated financial statements
Critical Audit Matter Description
Provisions for customer volume rebates, product returns, discounts, allowances, and cooperative advertising are variable consideration and are recorded as a reduction of revenue in the same period the related sales are recorded. The Company uses the most likely amount method to estimate variable consideration. On at least a quarterly basis, the Company performs detailed reviews of the adequacy of these sales-related accruals by evaluating specific customer contractual commitments and assessing current incentive programs and other relevant information, such as historical averages adjusted for any expected changes due to current business conditions.
We identified the adequacy of sales-related accruals as a critical audit matter because of the volume of the inputs and assumptions utilized by management in estimating these accruals. The sales-related accruals consist of accruals for specific customers, each of which requires management judgment and creates estimation uncertainty. This required both extensive audit effort due to the volume and complexity of the accruals and a high degree of auditor judgment when performing audit procedures to evaluate the reasonableness of management’s estimates.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the estimation of sales-related accruals included the following, among others:
•We obtained an understanding of management’s processes over calculating the accruals, including understanding relevant inputs and assumptions.
•We evaluated key inputs and assumptions relevant to the accruals, including evaluating specific customer contractual commitments and assessing current incentive programs and other relevant information, which were compared to source documents.
•We tested management’s process for calculating sales-related accruals.
/s/ Deloitte & Touche LLP
Detroit, MI
March 10, 2022
We have served as the Company's auditor since 2014.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Horizon Global Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Horizon Global Corporation and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated March 10, 2022, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Detroit, MI
March 10, 2022
HORIZON GLOBAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31,
2021 2020
Assets
Current assets:
Cash and cash equivalents $ 11,780 $ 44,970
Restricted cash 5,490 5,720
Receivables, net 80,720 87,420
Inventories 162,830 115,320
Prepaid expenses and other current assets 12,340 11,510
Total current assets 273,160 264,940
Property and equipment, net 71,610 74,090
Operating lease right-of-use assets 37,810 47,310
Goodwill - 3,360
Other intangibles, net 48,910 58,230
Deferred income taxes 1,750 1,280
Other assets 5,680 7,280
Total assets $ 438,920 $ 456,490
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings and current maturities, long-term debt $ 3,780 $ 14,120
Accounts payable 102,190 99,520
Short-term operating lease liabilities 11,010 12,180
Accrued liabilities 44,870 59,100
Total current liabilities 161,850 184,920
Gross long-term debt 297,070 251,960
Unamortized debt issuance costs and discount (26,520) (20,570)
Long-term debt 270,550 231,390
Deferred income taxes 1,920 3,130
Long-term operating lease liabilities 35,930 46,340
Other long-term liabilities 8,920 14,560
Total liabilities 479,170 480,340
Contingencies (See Note 11)
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; 27,973,153 shares issued and 27,286,647 outstanding at December 31, 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 December 31, 2021 and December 31, 2020, respectively
25,010 9,510
Paid-in capital 170,990 166,610
Treasury stock, at cost: 686,506 shares at December 31, 2021 and December 31, 2020
(10,000) (10,000)
Accumulated deficit (210,250) (178,530)
Accumulated other comprehensive loss (9,710) (6,540)
Total Horizon Global shareholders' deficit (33,690) (18,690)
Noncontrolling interest (6,560) (5,160)
Total shareholders' deficit (40,250) (23,850)
Total liabilities and shareholders' equity $ 438,920 $ 456,490
The accompanying notes are an integral part of these financial statements.
HORIZON GLOBAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share data)
Twelve Months Ended December 31,
2021 2020
Net sales $ 782,120 $ 661,230
Cost of sales (639,540) (540,680)
Gross profit 142,580 120,550
Selling, general and administrative expenses (135,360) (127,460)
Operating profit (loss) 7,220 (6,910)
Interest expense (27,970) (31,680)
Loss on debt extinguishment of Replacement Term Loan (11,650) -
Gain on debt extinguishment of Paycheck Protection Program Loan 7,530 -
Other expense, net (8,410) (470)
Loss from continuing operations before income tax (33,280) (39,060)
Income tax benefit 160 1,580
Net loss from continuing operations (33,120) (37,480)
Loss from discontinued operations, net of income tax - (500)
Net loss (33,120) (37,980)
Less: Net loss attributable to noncontrolling interest (1,400) (1,420)
Net loss attributable to Horizon Global $ (31,720) $ (36,560)
Net loss per share attributable to Horizon Global:
Basic:
Continuing operations $ (1.17) $ (1.40)
Discontinued operations - (0.02)
Total $ (1.17) $ (1.42)
Diluted:
Continuing operations $ (1.17) $ (1.40)
Discontinued operations - (0.02)
Total $ (1.17) $ (1.42)
Weighted average common shares outstanding:
Basic 27,086,876 25,797,529
Diluted 27,086,876 25,797,529
The accompanying notes are an integral part of these financial statements.
HORIZON GLOBAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Dollars in thousands)
Twelve Months Ended December 31,
2021 2020
Net loss $ (33,120) $ (37,980)
Other comprehensive (loss) income, net of tax:
Foreign currency translation and other (3,170) 3,250
Total other comprehensive (loss) income, net of tax (3,170) 3,250
Total comprehensive loss (36,290) (34,730)
Less: Comprehensive loss attributable to noncontrolling interest (1,400) (1,420)
Comprehensive loss attributable to Horizon Global $ (34,890) $ (33,310)
The accompanying notes are an integral part of these financial statements.
HORIZON GLOBAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Twelve Months Ended December 31,
2021 2020
Cash Flows from Operating Activities:
Net loss $ (33,120) $ (37,980)
Less: Net loss from discontinued operations - (500)
Net loss from continuing operations (33,120) (37,480)
Adjustments to reconcile net loss from continuing operations to net cash (used for) provided by operating activities:
Depreciation 14,680 16,290
Amortization of intangible assets 7,320 6,620
Loss on debt extinguishment of Replacement Term Loan 11,650 -
Gain on debt extinguishment of Paycheck Protection Program Loan (7,530) -
Amortization of original issuance discount and debt issuance costs 10,630 14,200
Deferred income taxes (1,670) (2,060)
Non-cash compensation expense 3,520 3,000
Paid-in-kind interest 650 8,120
Decrease (increase) in receivables 2,090 (12,230)
(Increase) decrease in inventories (52,300) 24,220
Increase in prepaid expenses and other assets (650) (4,900)
(Decrease) increase in accounts payable and accrued liabilities (5,170) 24,590
Other, net 7,200 (1,280)
Net cash (used for) provided by operating activities from continuing operations (42,700) 39,090
Cash Flows from Investing Activities:
Capital expenditures (20,460) (13,310)
Other, net 20 90
Net cash used for investing activities from continuing operations (20,440) (13,220)
Cash Flows from Financing Activities:
Proceeds from borrowing on credit facilities 3,090 7,220
Repayments of borrowings on credit facilities (3,030) (4,800)
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 45,820 54,680
Repayments of borrowings on Revolving Credit Facility (12,000) (32,760)
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 (650) (440)
Net cash provided by financing activities from continuing operations 30,310 12,650
Discontinued Operations:
Net cash used for discontinued operations - (500)
Effect of exchange rate changes on cash and cash equivalents and restricted cash (590) 900
Cash and Cash Equivalents and Restricted Cash:
(Decrease) increase for the year (33,420) 38,920
At beginning of year 50,690 11,770
At end of year $ 17,270 $ 50,690
Supplemental disclosure of cash flow information:
Cash paid for interest $ 19,620 $ 8,930
Cash paid for taxes, net of refunds $ 2,550 $ 1,560
The accompanying notes are an integral part of these financial statements.
HORIZON GLOBAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands)
Common Stock Common Stock Warrants Paid-in Capital Treasury Stock Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Horizon Global Shareholders' Equity (Deficit) Noncontrolling Interest Total Shareholders' Equity (Deficit)
Balances at January 1, 2020 $ 250 $ 10,610 $ 163,240 $ (10,000) $ (141,970) $ (9,790) 12,340 $ (3,740) 8,600
Net loss - - - - (36,560) - (36,560) (1,420) (37,980)
Other comprehensive income, net of tax - - - - - 3,250 3,250 - 3,250
Shares surrendered upon vesting of employees' share based payment awards to cover tax obligations - - (440) - - - (440) - (440)
Non-cash compensation expense - - 2,720 - - - 2,720 - 2,720
Exercise of common stock warrants 10 (1,100) 1,090 - - - - - -
Balances at December 31, 2020 $ 260 $ 9,510 $ 166,610 $ (10,000) $ (178,530) $ (6,540) $ (18,690) $ (5,160) $ (23,850)
Net loss - - - - (31,720) - (31,720) (1,400) (33,120)
Other comprehensive loss, net of tax - - - - - (3,170) (3,170) - (3,170)
Shares surrendered upon vesting of employees' share based payment awards to cover tax obligations - - (650) - - - (650) - (650)
Non-cash compensation expense - - 3,820 - - - 3,820 - 3,820
Issuance common stock of warrants - 16,300 - - - - 16,300 - 16,300
Exercise of common stock warrants 10 (800) 1,210 - - - 420 - 420
Balances at December 31, 2021 $ 270 $ 25,010 $ 170,990 $ (10,000) $ (210,250) $ (9,710) $ (33,690) $ (6,560) $ (40,250)
The accompanying notes are an integral part of these financial statements.
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations and Basis of Presentation
Horizon Global Corporation and its consolidated subsidiaries (“Horizon,” “Horizon Global,” “we,” “our,” or the “Company”) are a designer, manufacturer and distributor of a wide variety of high quality, custom-engineered towing, trailering, cargo management and other related accessory products 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 15, Segment Information, for further information on the Company’s operating segments.
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). See Note 3, Summary of Significant Accounting Policies, for further information.
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. New Accounting Pronouncements
New accounting pronouncements not yet adopted
In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance” (“ASU 2021-10”). ASU 2021-10 increases the transparency of government assistance disclosures. Under this guidance, entities will be required to disclose the types of government assistance received, the entity’s accounting for the government assistance and the effect of the government assistance on the entity’s financial statements. ASU 2021-10 is effective for financial statements issued for annual periods beginning after December 15, 2021, with early adoption permitted. The standard is not expected to have a significant impact on the Company's consolidated financial statements.
In May 2021, the FASB issued 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. The standard is not expected to have a significant impact on the Company's 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 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 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 consolidated financial statements.
Accounting pronouncements recently adopted
There were no new accounting pronouncements adopted during the twelve months ended December 31, 2021.
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements include the assets, liabilities, revenues and expenses of Horizon Global and its wholly-owned subsidiaries. In addition, the consolidated financial statements include the consolidation of a variable interest entity for which the Company has been deemed to be the primary beneficiary. Intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates, judgments, and assumptions also affect the reported amounts of revenues and expenses during the reporting periods. The Company believes 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, depreciation and amortization, estimates related to lease liability and operating lease right-of-use (“ROU”) asset valuations, estimated future unrecoverable lease costs, legal and product liability matters, valuation of debt instruments and warrants, assets and obligations related to employee benefits, and the respective allocation methods, 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.
Cash and Cash Equivalents. The Company considers cash on hand and on deposit and investments in all highly liquid debt instruments with initial maturities of three months or less to be cash and cash equivalents.
Restricted Cash. Restricted cash primarily consists of cash that must be maintained as collateral for letters of credit or other restrictions. The Company considers the expected timing of the release of the restrictions to determine the appropriate financial statement classification. Refer to Note 9, Long-term Debt, for additional information.
Account Receivables. Receivables consist primarily of amounts from contracts with customers for the sale of towing, trailering, cargo management and other related accessories. As of December 31, 2021 and 2020, receivables were $80.7 million and $87.4 million, respectively, net of allowances for doubtful accounts of $2.8 million and $2.7 million, respectively. The Company monitors its exposure for credit losses and maintains allowances for doubtful accounts based upon the Company’s best estimate of probable losses inherent in the account receivables balances. The Company does not believe significant credit risk exists due to its diverse customer base.
Account Receivables Factoring. The Company has factoring arrangements with financial institutions to sell certain account receivables under certain non-recourse agreements. During the twelve months ended December 31, 2021 and 2020, total receivables sold under the factoring arrangements were $279.9 million and $237.1 million, respectively. The sales of account receivables in accordance with the factoring arrangements are reflected as a reduction of receivables, net in the consolidated balance sheets as they meet the applicable criteria of ASC 860, “Transfers and Servicing.” As of December 31, 2021 and 2020, the holdback amounts due from the factoring institutions were $2.6 million and $8.7 million, respectively, and are shown in receivables, net in the consolidated balance sheets. Cash proceeds from these arrangements are included in the change in receivables under the operating activities section of the consolidated statements of cash flows. The Company pays factoring fees associated with the sale of receivables based on the dollar value of the receivables sold. During the twelve months ended December 31, 2021 and 2020, total factoring fees were $1.5 million and $1.0 million, respectively.
Inventories. Inventories are stated at lower of cost or net realizable value, with cost determined using the first-in, first-out basis. Direct materials, direct labor and allocations of variable and fixed manufacturing-related overhead are included in inventory cost. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal and transportation.
Property and Equipment. Property and equipment additions, including significant improvements, are recorded at cost. Upon retirement or disposal of property and equipment, the historical cost and accumulated depreciation are removed from the accounts, and any gain or loss is included in the accompanying consolidated statements of operations. Repair and maintenance costs are charged to expense as incurred.
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Annual depreciation rates are as follows:
Fixed Asset Category Estimated Useful Life
Land improvements 3 - 25 years
Buildings and building improvements 25 - 40 years
Machinery and equipment 3 - 15 years
Leases. The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets; short-term operating lease liabilities; and long-term operating lease liabilities in the consolidated balance sheets. Finance leases are included in property and equipment, net; short-term borrowings and current maturities, long-term debt; and long-term debt in the consolidated balance sheets. Short-term leases with terms of twelve months or less are not recognized on the balance sheet and are expensed on a straight-line basis over the lease term.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company’s leases typically do not provide an implicit rate; therefore, we generally use the Company’s incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for operating lease payments is recognized 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 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 for all leases.
Impairment of Long-Lived Assets and Definite-Lived Intangible Assets. The Company reviews its financial performance for indicators of impairment on at least a quarterly basis. In reviewing for impairment indicators, the Company considers events or changes in circumstances such as business prospects, customer retention, market trends, potential product obsolescence, competitive activities and other economic factors. An impairment loss is recognized when the carrying value of an asset group exceeds the future net undiscounted cash flows expected to be generated by that asset group. The impairment loss recognized is the amount by which the carrying value of the asset group exceeds its fair value.
Goodwill. Goodwill is acquired in a business combination and represents the excess of purchase consideration over the fair value of assets acquired and liabilities assumed. The Company determines its reporting units at the individual operating segment level, or one level below, when there is discrete financial information available that is regularly reviewed by segment management for evaluating operating results. Goodwill is reviewed by the Company for impairment on a reporting unit basis annually on October 1st or more frequently if indicators are present or changes in circumstances suggest that impairment may exist. The Company performs a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is performed. If so, then the Company performs testing for possible impairment in a one-step quantitative process. The fair value of a reporting unit is compared with its carrying value, including goodwill. If fair value exceeds the carrying value, goodwill is not considered to be impaired. If the fair value of a reporting unit is below the carrying value, then goodwill is considered to be impaired in the amount of the excess of a reporting unit’s carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
During the second quarter of 2021, the Company divested its Brazil business, including $3.3 million of goodwill within the Horizon Americas operating segment. As a result, as of December 31, 2021, the Company had no recorded goodwill. See Note 5, Goodwill and Other Intangible Assets, for further information.
Indefinite-Lived Intangibles. The Company assesses indefinite-lived intangible assets for impairment annually on October 1st by reviewing relevant qualitative and quantitative factors. More frequent evaluations may be required if the Company experiences changes in its business climate or as a result of other triggering events.
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Indefinite-lived intangible assets are tested for impairment by comparing the fair value of each intangible asset with its carrying value. The value of indefinite-lived intangible assets are based on the present value of projected cash flows using a relief from royalty approach. If the carrying value exceeds fair value, the intangible asset is considered impaired and is reduced to fair value. See Note 5, Goodwill and Other Intangible Assets, for further information.
Revenue Recognition and Sales Related Accruals. Revenue is recognized when obligations under the terms of a contract with the Company’s customers are satisfied; generally, this occurs with the transfer of control of its towing, trailering, cargo management and other related accessory products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring its products. Sales, value added and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. The Company’s payment terms vary by the type and location of its customers and the products offered. The term between invoicing and when payment is due is not significant.
For the majority of the Company’s sales arrangements, the Company deems control to transfer at a single point in time and recognizes revenue when it ships products from its manufacturing facilities to its customers. Once a product has shipped, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the asset. The Company considers control to transfer upon shipment because the Company has a present right to payment at that time, the customer has legal title to the asset, and the customer has significant risks and rewards of ownership of the asset.
Provisions for customer volume rebates, product returns, discounts and allowances, including incentives for cooperative advertising, are variable considerations and are recorded as a reduction of revenue in the same period the related sales are recorded. Such provisions are calculated using historical averages adjusted for any expected changes due to current business conditions. The Company uses the most likely amount method to estimate variable consideration. During the twelve months ended December 31, 2021 and 2020, adjustments to estimates of variable consideration for previously recognized revenue were insignificant.
The Company expenses costs incurred to obtain a contract with a customer when the amortization period is one year or less. These costs include sales commissions as the Company has determined annual compensation is commensurate with annual sales activities.
The Company does not adjust consideration for the effects of a significant financing component when the period between shipment of its products and customer’s payment is one year or less.
Cost of Sales. Cost of sales includes material, labor and overhead costs incurred in the manufacturing of products sold in the period. Material costs include raw material, purchased components, outside processing and shipping and handling costs. Overhead costs consist of variable and fixed manufacturing costs, wages and fringe benefits, and purchasing, receiving and inspection costs.
Research and Development Costs. Research and development (“R&D”) costs are expensed as incurred. During the twelve months ended December 31, 2021 and 2020, R&D expenses were $14.9 million and $13.3 million, respectively, and are included in cost of sales in the accompanying consolidated statements of operations.
Selling, General and Administrative Expenses. Selling, general and administrative expenses include the following: costs related to the advertising, sale and marketing of the Company’s products, amortization of customer intangible assets, costs associated with the Company’s distribution network, costs of back office support functions and other administrative expenses.
Shipping and Handling Expenses. Shipping and handling costs associated with outbound freight are accounted for as a fulfillment cost and are included in cost of sales. Other shipping and handling expenses, which primarily relate to Horizon Americas’ distribution network, are included in selling, general and administrative expenses in the accompanying consolidated statements of operations. During the twelve months ended December 31, 2021 and 2020, other shipping and handling costs were $17.2 million and $17.0 million, respectively.
Advertising and Sales Promotion Costs. Advertising and sales promotion costs are expensed as incurred. During the twelve months ended December 31, 2021 and 2020, advertising and sales promotion costs were $3.2 million and $2.6 million, respectively, and are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income Taxes. The Company computes income taxes using the asset and liability method, whereby deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities and for operating loss and tax credit carryforwards. Under this method, changes in tax rates and laws are recognized in income in the period such changes are enacted. Valuation allowances are determined based on an assessment of positive and negative evidence on a jurisdiction-by-jurisdiction basis and are utilized to reduce deferred tax assets to the amount more likely than not to be realized. The Company recognizes the effect of income tax positions only if those positions have a probability of more likely than not of being sustained in an audit. Recognized income tax positions are measured at the largest amount that has greater than 50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to uncertain tax positions within income tax expense. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets.
The provision for federal, foreign, and state and local income taxes is calculated on income before income taxes based on current tax law and includes the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provision differs from the amounts currently payable because certain items of income and expense are recognized in different reporting periods for financial reporting purposes than for income tax purposes.
Foreign Currency. The financial statements of subsidiaries located outside of the United States are measured using the currency of the primary economic environment in which they operate as their functional currency. When translating into U.S. dollars, income and expense items are translated at period average exchange rates and assets and liabilities are translated at exchange rates in effect at the balance sheet date. Translation adjustments resulting from translating the functional currency into U.S. dollars are deferred as a component of accumulated other comprehensive income (loss) (“AOCI”) in the consolidated balance sheets.
The effects of remeasuring monetary assets and liabilities of the Company’s businesses denominated in currencies other than their functional currency are recorded as transaction gains and losses as a component of other expense, net in the consolidated statements of operations. Gains and losses resulting from transactions denominated in a currency other than the functional currency are recorded as a component of other expense, net in the consolidated statements of operations. During the twelve months ended December 31, 2021 and 2020, the Company had $(4.1) million net foreign currency transaction loss and a $0.9 million gain, respectively.
Derivative Financial Instruments. The Company records all derivative financial instruments at fair value on the balance sheets as either assets or liabilities, and changes in their fair values are immediately recognized in earnings if the derivatives are not designated as or do not qualify as effective hedges. If a derivative is designated as a fair value hedge, then the effective portion of changes in the fair value of the derivative are offset against the changes in the fair value of the underlying hedged item. If a derivative is designated as a cash flow hedge, then the effective portion of the changes in the fair value of the derivative is recognized as a component of AOCI until the underlying hedged item is recognized in earnings or the forecasted transaction is no longer probable of occurring. When the underlying hedged transaction is realized or the hedged transaction is no longer probable, the gain or loss included in AOCI is reclassified into earnings and reflected in the consolidated statements of operations through the same line item as the underlying hedged item.
The Company formally documents hedging relationships for all derivative transactions and the underlying hedged items, as well as its risk management objectives and strategies for undertaking the hedge transactions at the time of transaction.
Fair Value of Financial Instruments. In accounting for and disclosing the fair value of these instruments, the Company uses the following hierarchy:
▪Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date;
▪Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
▪Level 3 inputs are unobservable inputs for the asset or liability.
Valuation of the Company’s foreign currency forward contracts and cross currency swaps are based on the income approach, which uses observable inputs such as forward currency exchange rates and swap rates. As of December 31, 2021 and 2020, there were no outstanding derivatives contracts.
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The carrying amounts for cash and cash equivalents, receivables, accounts payable and accrued liabilities approximate their fair values due to the short period of time until maturity. Fair values of certain debt instruments are derived from Level 2 inputs, see Note 9, Long-term Debt, for further information.
Environmental Obligations. The Company is subject to environmental laws and regulations, including those relating to air emissions, wastewater discharges and chemical and hazardous waste management and disposal. Some of these environmental laws hold owners or operators of land or businesses liable for their own and for previous owners’ or operators’ releases of hazardous or toxic substances or wastes. Other environmental laws and regulations require the obtainment and compliance with environmental permits. To date, costs of complying with environmental requirements have not been material; however, the Company cannot quantify with certainty the potential impact of future compliance efforts and environmental remediation actions.
While the Company must comply with existing and pending climate change legislation, regulation and international treaties or accords, current laws and regulations have not had a material impact on the Company’s business, capital expenditures or financial position. Future events, including those relating to climate change or greenhouse gas regulation could require the Company to incur expenses related to the modification or curtailment of operations, installation of pollution control equipment or investigation and cleanup of contaminated sites.
Contingencies and Ordinary Course Claims. In the ordinary course of business, the Company is subject of, or party to, various pending or threatened legal actions and other contingent liability actions, including those arising from alleged defects related to our products, product warranties, recalls, breach of contracts, intellectual property matters, international trade, customs and duties matters, employment-related matters and other litigation. Litigation is always subject to inherent uncertainty and the Company is not able to reasonably predict if any matter will be resolved in a manner that is materially adverse to the Company.
An accrual for potential losses related to these contingencies is established when there is a probable occurrence of loss and the amount can be reasonably estimated. The Company does not record liabilities when the likelihood that a liability has been incurred is probable, but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote. When the Company evaluates matters for accrual and disclosure purposes, factors considered include historical experience with matters of a similar nature, the specific facts and circumstances asserted and the related jurisdictional legal proceedings, the likelihood that we will prevail, and the severity of any potential loss. We monitor and update our accruals as matters progress over time.
The Company carries product liability, recall and other insurance to defray some of the costs if a claim settlement or judgment exceeds our self-insured retention limit. Refer to Note 11, Contingencies, for additional information.
Stock-based Compensation. The Company measures stock-based compensation expense at fair value as of the grant date in accordance with U.S. GAAP and recognizes such expenses over the vesting period of the stock-based employee awards. Stock options are issued with an exercise price equal to the opening market price of Horizon common shares on the date of grant. The fair value of stock options is determined using a Black-Scholes option pricing model, which incorporates assumptions regarding the expected volatility, expected option life, risk-free interest rate and expected dividend yield. In addition, the Company periodically updates its estimate of attainment for each restricted share with a performance factor based on current and forecasted results, reflecting the change from prior estimate, if any, in current period compensation expense.
Other Comprehensive Income (Loss). The Company refers to other comprehensive income (loss) as revenues, expenses, gains and losses that under U.S. GAAP are included in comprehensive income (loss) but are excluded from net income (loss) as these amounts are recorded directly as an adjustment to AOCI. Other comprehensive income (loss) is comprised of foreign currency translation adjustments.
4. 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 aftermarket channel represents sales to automotive installers and warehouse distributors. The automotive OEM channel represents sales to automotive vehicle manufacturers. The automotive OES channel primarily represents sales to automotive vehicle dealerships. 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
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
The Company’s net sales by segment and disaggregated by major sales channel are as follows:
Twelve months ended December 31, 2021
Horizon Americas Horizon Europe-Africa Total
(dollars in thousands)
Net Sales
Aftermarket $ 136,430 $ 84,860 $ 221,290
Automotive OEM 99,120 160,270 259,390
Automotive OES 15,500 69,930 85,430
Retail 105,310 - 105,310
E-commerce 63,340 6,580 69,920
Industrial 36,710 1,980 38,690
Other - 2,090 2,090
Total $ 456,410 $ 325,710 $ 782,120
Twelve months ended December 31, 2020
Horizon Americas Horizon Europe-Africa Total
(dollars in thousands)
Net Sales
Aftermarket $ 114,750 $ 73,010 $ 187,760
Automotive OEM 77,280 149,850 227,130
Automotive OES 8,310 50,290 58,600
Retail 100,660 - 100,660
E-commerce 53,850 1,570 55,420
Industrial 27,480 1,670 29,150
Other 50 2,460 2,510
Total $ 382,380 $ 278,850 $ 661,230
5. Goodwill and Other Intangible Assets
During the twelve months ended December 31, 2020, the COVID-19 pandemic and the related wide-ranging actions taken by international, federal, state, and local public health and governmental authorities to combat the pandemic and spread of COVID-19 in regions across the United States and the world resulted in a temporary decline in the financial performance of the Company, primarily related to the first half of 2020, and at the same time pressure on its near-term financial forecasts. Consequently, the Company identified an indicator of impairment on its goodwill and indefinite-lived intangible assets in its Horizon Americas reporting unit and on its indefinite-lived intangible assets in its Horizon Europe-Africa reporting unit in the first quarter of 2020.
As a result of the indicator, the Company performed an interim quantitative impairment assessment of the goodwill recorded for the Horizon Americas reporting unit as of March 31, 2020, by considering the market and income approaches. The results of the quantitative analysis performed indicated the fair value of the reporting unit exceeded the carrying value. Key assumptions used in the analysis were a discount rate of 14.0%, Adjusted EBITDA (as defined below) margin and a terminal growth rate of 3.0%. The primary driver in the reduction of the fair value of the reporting unit was a reduction of expected future cash flows, reflecting uncertainty surrounding the extent and duration of the COVID-19 pandemic.
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 extinguishment of debt, 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.
In addition, as a result of the indicator of impairment identified, the Company performed an interim impairment assessment of its indefinite-lived intangible assets as of March 31, 2020 in the Horizon Americas and Horizon Europe-Africa operating segments. Based on the results of the analyses, the estimated fair values of the trade names exceeded the carrying values. Key assumptions used in the analyses were a discount rate of 14.5% and royalty rates ranging from 0.5% to 1.9%.
The Company performed an annual goodwill impairment test as of October 1, 2020, for the Horizon Americas reporting unit. The assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value.
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, as of December 31, 2021, the Company had no recorded goodwill and no annual goodwill impairment test was required in 2021. As a result of the Brazil Sale, the Company recorded a $2.2 million loss in other expense, net in the accompanying consolidated statements of operations.
Changes in the carrying amount of goodwill are as follows:
Horizon Americas Horizon Europe-Africa Total
(dollars in thousands)
Balances at January 1, 2020 $ 4,350 $ - $ 4,350
Foreign currency translation (990) - (990)
Balances at December 31, 2020 3,360 - 3,360
Divestiture of business (3,340) - (3,340)
Foreign currency translation (20) - (20)
Balances at December 31, 2021 $ - $ - $ -
The gross carrying amounts and accumulated amortization of the Company’s other intangible assets are as follows:
December 31, 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
$ 162,390 $ (137,420) $ 24,970
Technology and other, 3 - 15 years
23,870 (20,830) 3,040
Sub-total 186,260 (158,250) 28,010
Trademark/Trade names, indefinite-lived 20,900 - 20,900
Total $ 207,160 $ (158,250) $ 48,910
HORIZON GLOBAL CORPORATION
NOTES TO 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:
Twelve Months Ended
December 31,
2021 2020
(dollars in thousands)
Technology and other, included in cost of sales $ 3,080 $ 1,160
Customer relationships and other, included in selling, general and administrative expenses 4,240 5,460
Total $ 7,320 $ 6,620
Estimated amortization expense for the next five fiscal years beginning after December 31, 2021 is as follows:
Twelve Months Ended
December 31, Estimated Amortization Expense
(dollars in thousands)
2022 $ 4,840
2023 $ 4,490
2024 $ 4,380
2025 $ 4,160
2026 $ 2,630
The Company performed an annual quantitative impairment assessment of its indefinite-lived intangible assets as of October 1, 2021 and 2020 in the Horizon Americas and Horizon Europe-Africa operating segments. The assessment indicated that it was more likely than not that the fair value of each of the indefinite-lived intangible assets exceeded its respective carrying value. We do not believe there is risk for impairment as of December 31, 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Inventories
Inventories consist of the following components:
December 31,
2021 2020
(dollars in thousands)
Finished goods $ 85,770 $ 58,600
Work in process 15,570 13,070
Raw materials 61,490 43,650
Total $ 162,830 $ 115,320
7. Property and Equipment, Net
Property and equipment, net consists of the following components:
December 31,
2021 2020
(dollars in thousands)
Land and land improvements $ 480 $ 520
Buildings and building improvements 22,210 23,040
Machinery and equipment 135,110 134,750
Gross property and equipment 157,800 158,310
Accumulated depreciation (86,190) (84,220)
Total $ 71,610 $ 74,090
Depreciation expense is as follows:
Twelve Months Ended
December 31,
2021 2020
(dollars in thousands)
Depreciation expense, included in cost of sales $ 13,430 $ 15,210
Depreciation expense, included in selling, general and administrative expenses 1,250 1,080
Total $ 14,680 $ 16,290
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Accrued and Other Long-term Liabilities
Accrued liabilities consist of the following components:
December 31,
2021 2020
(dollars in thousands)
Customer incentives $ 13,030 $ 15,870
Accrued compensation 7,520 12,130
Accrued transportation costs 5,600 4,260
Short-term tax liabilities 3,530 5,570
Accrued interest expense 3,430 4,510
Customer claims 2,900 6,520
Accrued professional services 1,700 1,510
Litigation settlements 1,290 1,600
Restructuring - 650
Deferred purchase price - 1,370
Other 5,870 5,110
Total $ 44,870 $ 59,100
Other long-term liabilities consist of the following components:
December 31,
2021 2020
(dollars in thousands)
Litigation settlements $ 1,820 $ 2,930
Long-term tax liabilities 130 130
Deferred purchase price - 1,650
Restructuring - 1,070
Other 6,970 8,780
Total $ 8,920 $ 14,560
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-term Debt
The Company’s long-term debt consists of the following components:
December 31,
2021 2020
(dollars in thousands)
Revolving Credit Facility $ 58,050 $ 24,230
Senior Term Loan 100,000 -
Replacement Term Loan - 90,210
Convertible Notes 125,000 125,000
Paycheck Protection Program Loan 1,230 8,670
Bank facilities, capital leases and other long-term debt 16,570 17,970
Gross debt 300,850 266,080
Less:
Short-term borrowings and current maturities, long-term debt 3,780 14,120
Gross long-term debt 297,070 251,960
Unamortized debt issuance costs and discount:
Unamortized debt issuance costs and original issuance discount on Senior Term Loan (22,170) -
Unamortized debt issuance costs and original issuance discount on Replacement Term Loan - (9,100)
Unamortized debt issuance costs and discount on Convertible Notes (4,350) (11,470)
Unamortized debt issuance costs and discount (26,520) (20,570)
Total $ 270,550 $ 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 twelve months ended December 31, 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 consolidated statements of operations, in accordance with ASC 470-50, “Modifications and Extinguishments” (“ASC 470-50”).
During the twelve months ended December 31, 2021 and 2020, the Company recognized no and $0.4 million amortization of debt issuance costs, respectively, in the accompanying 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
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
$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.
In April 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 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 September 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 to $95.0 million. The amendment also increased the Company’s ability to borrow against receivables and sub-limits relating to in-transit inventory and inventory located in the Company’s Mexico facilities. The increased borrowing capacity against receivables and inventory was effective through December 31, 2021.
On December 30, 2021, the Company entered into an amendment to the Loan Agreement (“the Sixth Amendment”), that among other modifications, permanently increased the Company’s inventory sub-limit and temporarily increased the Company’s ability to borrow against receivables, in-transit inventory as well as inventory located in the Company’s Mexico facilities, which is effective through March 31, 2022.
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. The Sixth Amendment also amended the interest rate of the Revolving Credit Facility effective March 31, 2022, to be 3.50% to 4.00% per annum, subject to certain conditions defined in the Loan Agreement.
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. The Sixth Amendment also extended the term of the Revolving Credit Facility by one year, and all borrowings under the Loan Agreement mature on March 13, 2024.
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 are being amortized into interest expense over the contractual term of the Loan Agreement.
During the twelve months ended December 31, 2021 and 2020, the Company recognized $0.6 million and $1.2 million, respectively, of amortization of debt issuance costs in the accompanying consolidated statements of operations.
As of December 31, 2021 and 2020, there was $0.8 million and $1.1 million, respectively, of unamortized debt issuance costs included in other assets in the accompanying consolidated balance sheets.
As of December 31, 2021 and 2020, there was $58.1 million and $24.2 million outstanding, respectively, under the Revolving Credit Facility. As of December 31, 2021 and 2020, the Company had $27.4 million and $38.4 million of availability, respectively, under the Revolving Credit Facility.
As of December 31, 2021 and 2020, the Company had $2.1 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 December 31, 2021 and 2020, the Company also had $4.2 million and $4.9 million of other letters of credit issued and outstanding, respectively, under the Revolving Credit Facility with a cash collateral requirement. The cash collateral requirement is 105% of the outstanding letters
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of credit. As of December 31, 2021 and 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 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”.
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 twelve months ended December 31, 2021 and 2020, the Company recognized no and $0.2 million of amortization of debt issuance and discount costs, respectively, in the accompanying consolidated statements of operations.
During the twelve months ended December 31, 2021 and 2020, the Company recognized no and $0.4 million of paid-in-kind (“PIK”) interest, respectively, in the accompanying 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.
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 twelve months ended December 31, 2021 and 2020, the Company recognized no and $2.7 million amortization of debt issuance costs, respectively, in the accompanying consolidated statements of operations.
During the twelve months ended December 31, 2021 and 2020, the Company recognized no and $3.4 million of PIK interest, respectively, in the accompanying consolidated statements of operations.
Replacement Term Loan
In July 2020, the Company entered into an amendment of the Company’s Term Loan Agreement (the “Replacement Term Loan Amendment”). The Replacement Term Loan Amendment provided a replacement term loan (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.
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. The Replacement Term Loan 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.
All of the indebtedness under the Replacement Term Loan was guaranteed by the Company’s existing and future material domestic subsidiaries and was secured by substantially all of the assets of the Company and such guarantors.
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 Replacement Term Loan. As a result of the repayment, the Term Loan Agreement was terminated and is no longer in effect. During the twelve months ended December 31, 2021, the Company recognized $11.7 million as loss on debt extinguishment in the accompanying consolidated statements of operations, in accordance with ASC
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
470-50. Included in the loss was $8.9 million of unamortized debt issuance and other costs and a $2.8 million prepayment penalty.
During the twelve months ended December 31, 2020, the Company recognized $0.2 million of additional costs in selling, general and administrative expense in the accompanying consolidated statements of operations, in accordance with ASC 470-50.
During the twelve months ended December 31, 2021 and 2020, the Company recognized $0.4 million and $2.3 million of amortization of debt issuance costs, respectively, in the accompanying consolidated statements of operations.
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 consolidated balance sheets.
During the twelve months ended December 31, 2020, the Company made a one-time election to pay all interest as PIK interest on the first interest payment date. During the twelve months ended December 31, 2021 and 2020, the Company recognized $0.7 million and $4.3 million of PIK interest, respectively, in the accompanying consolidated statements of operations.
As of December 31, 2020, the Company had $90.2 million of aggregate principal amount outstanding and traded at 103.6% of par value. The valuation of the Replacement Term Loan was determined based on Level 2 inputs under the fair value hierarchy.
Senior Term Loan Credit Agreement
In February 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. The Senior Term Loan Credit Agreement provides for an initial term loan facility (the “Senior Term Loan”) 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 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 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”.
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 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 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 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 consolidated balance sheets.
During the twelve months ended December 31, 2021, the Company recognized $2.5 million of amortization of debt issuance and discount costs in the accompanying consolidated statements of operations.
As of December 31, 2021, the Company had total unamortized debt issuance and discount costs of $22.2 million, all of which were recorded as a reduction of long-term debt in the accompanying consolidated balance sheets.
As of December 31, 2021, the Company had $100.0 million aggregate principal outstanding and traded at 102.1% of par value. The valuation of the Senior Term Loan was determined based on Level 2 inputs under the fair value hierarchy.
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.
The Convertible Notes are convertible at the option of the holder (i) during any calendar quarter beginning after March 31, 2017, if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business days after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of such period was less than 98% of the product of the last reported sale price of the Company’s common stock $1,000 and the conversion rate on each such trading day; (iii) upon the occurrence of specified corporate events; and (iv) on or after January 1, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date.
The Convertible Notes were not convertible during the fourth quarter of 2021, as no conditions allowing holders of the Convertible Notes to convert have been met. 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 December 31, 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.
The Company allocated offering costs of $3.9 million to the debt and equity components in proportion to the allocation of proceeds to the components, treating them as debt issuance costs and equity issuance costs, respectively. The debt issuance costs of $2.9 million are being amortized as additional non-cash interest expense using the effective interest method over the contractual term of the Convertible Notes. The Company presents debt issuance costs as a direct deduction from the carrying
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
value of the liability component. As of December 31, 2021 and 2020, the carrying value of the liability component was $120.6 million and $113.5 million, including total unamortized debt discount and debt issuance costs of $4.4 million and $11.5 million, respectively, all of which were recorded as a reduction of long-term debt in the accompanying consolidated balance sheets. The $1.0 million portion of offering costs allocated to equity issuance costs was charged to paid-in capital. As of December 31, 2021 and 2020, the carrying amount of the equity component was $20.0 million and $20.0 million, respectively, net of issuance costs and taxes.
During the twelve months ended December 31, 2021 and 2020, the Company recognized total interest expense of $10.6 million and $10.1 million, respectively, in the accompanying 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:
Twelve Months Ended
December 31,
2021 2020
(dollars in thousands)
Contractual interest coupon on convertible debt $ 3,440 $ 3,457
Amortization of debt issuance costs 530 530
Amortization of "equity discount" related to debt 6,590 6,071
Total $ 10,560 $ 10,058
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. The Convertible Note Hedges have a default settlement method of net-share settlement but may be settled in cash or shares, depending on the Company’s method of settlement for conversion of the corresponding Convertible Notes. If the Company exercises the Convertible Note Hedges, the shares of common stock it will receive from the option counterparties to the Convertible Note Hedges will cover the shares of common stock that it would be required to deliver to the holders of the converted Convertible Notes in excess of the principal amount thereof. The aggregate cost of the Convertible Note Hedges was $29.0 million (or $7.5 million net of the total proceeds from the Warrants sold, as discussed below), before the allocation of issuance costs of $0.7 million. The Convertible Note Hedges are accounted for as equity transactions in accordance with ASC 815-40.
In connection with the issuance of the Convertible Notes, the Company also sold net-share-settled warrants (the “Warrants”) in privately negotiated transactions with the option counterparties for the purchase of up to 5,005,000 shares of its common stock at a strike price of $29.60 per share, for total proceeds of $21.5 million before the allocation of $0.5 million of issuance costs. The Company also recorded the Warrants within shareholders’ equity in accordance with ASC 815-40. The Warrants have customary anti-dilution provisions similar to the Convertible Notes. As a result of the issuance of the Warrants, the Company will experience dilution to its diluted earnings per share if its average closing stock price exceeds $29.60 for any fiscal quarter. The Warrants expire on various dates from October 2022 through February 2023 and must be net-settled in shares of the Company’s common stock. Therefore, upon exercise of the Warrants, the Company will issue shares of its common stock to the purchasers of the Warrants that represent the value by which the price of the common stock exceeds the strike price stipulated within the particular warrant agreement.
As a result of the Company’s Senior Term Loan Credit Agreement, which includes the delayed draw term loan facility described above, and the Series B Preferred Stock commitment letter executed in February 2022 described in Note 18. Subsequent Events, the Company has the ability and intent to repay the Convertible Notes when they mature on July 1, 2022.
As of December 31, 2021 and 2020, the Company had $125.0 million and $125.0 million, respectively, of aggregate principal outstanding. As of December 31, 2021 and 2020, the estimated fair value of the Convertible Notes based on a market approach was $121.6 million and $113.3 million, respectively, which both represent a Level 2 valuation. The estimated fair value was
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
determined based on the estimated or actual bids and offers of the Convertible Notes in an over-the-counter market on the last business day of the period.
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 was amended in July 2021 to make any unforgiven portion payable over five years on a monthly basis. 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 size based criteria of the program.
During the fourth quarter of 2021, the Company’s application of loan forgiveness with PNC and the SBA was approved for forgiveness of $7.4 million of principal and $0.1 million of interest. The Company accounted for the $7.5 million of total forgiveness as a gain on debt extinguishment in the accompanying consolidated statements of operations, in accordance with ASC 470-50. The $1.3 million unforgiven portion of the loan has an interest rate of 1.0% per annum and will be repaid on a monthly basis through April 2025.
Covenant and Liquidity Matters
As of December 31, 2021, the Company is in compliance with all of its financial covenants.
Long-term Debt Maturities
As of December 31, 2021, future maturities of the face value of long-term debt are as follows:
Future Maturities of
Long-Term Debt
(dollars in thousands)
2022(a)
$ 128,780
2023 2,160
2024 60,120
2025 1,810
2026 570
Thereafter 107,410
Total $ 300,850
(a) Includes $125.0 million principle of Convertible Notes, which mature on July 1, 2022 and is presented in long-term debt of the accompanying consolidated balance sheets, as described above.
10. Leases
The Company leases certain facilities, automobiles and equipment under non-cancellable operating leases. Our leases have remaining lease terms of one year to seven 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. 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, for more information.
Supplemental information for the Company’s leases is as follows:
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Twelve Months Ended
December 31,
2021 2020
(dollars in thousands)
Operating lease cost $ 14,450 $ 14,970
Operating cash flows from operating leases $ 13,600 $ 16,050
ROU assets obtained in exchange for operating lease obligations $ 1,160 $ 9,940
December 31,
2021 2020
Weighted average remaining lease term (years) 5.1 6.0
Weighted average discount rate 8.4 % 8.4 %
Future maturities of operating lease liabilities at December 31, 2021 are as follows:
Operating Leases
(dollars in thousands)
2022 $ 14,180
2023 11,400
2024 9,100
2025 8,310
2026 6,970
2027 and thereafter 7,690
Total lease payments 57,650
Less imputed interest (10,710)
Present value of lease liabilities $ 46,940
11. 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 in the accompanying consolidated statements of operations. During the twelve months ended December 31, 2021 and 2020, the Company recorded $0.6 million and $0.5 million of royalties, respectively, all of which were recorded in cost of sales in the accompanying consolidated statements of operations.
As of December 31, 2021 and 2020, the Company had recorded $0.9 million and $0.9 million, respectively, in prepaid expenses and other current assets and $1.0 million and $1.8 million, respectively, in other assets in the accompanying 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 December 31, 2021 and 2020, the Company had $0.9 million and $1.0 million, respectively, in accrued liabilities and $1.8 million and $2.9 million, respectively, in other long-term liabilities in the accompanying consolidated balance sheets related to the remaining semi-annual installment payments.
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. 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 loss per share attributable to Horizon Global and diluted loss per share attributable to Horizon Global is as follows:
Twelve Months Ended
December 31,
2021 2020
(dollars in thousands, except for per share amounts)
Numerator:
Net loss from continuing operations $ (33,120) $ (37,480)
Add: Loss from discontinued operations, net of tax - (500)
Less: Net loss attributable to noncontrolling interest (1,400) (1,420)
Net loss attributable to Horizon Global $ (31,720) $ (36,560)
Denominator:
Weighted average shares outstanding, basic 27,086,876 25,797,529
Dilutive effect of common stock equivalents - -
Weighted average shares outstanding, diluted 27,086,876 25,797,529
Basic loss per share attributable to Horizon Global
Continuing operations $ (1.17) $ (1.40)
Discontinued operations $ - $ (0.02)
Total $ (1.17) $ (1.42)
Diluted loss per share attributable to Horizon Global
Continuing operations $ (1.17) $ (1.40)
Discontinued operations $ - $ (0.02)
Total $ (1.17) $ (1.42)
As a result of the net loss from continuing operations for the twelve months ended December 31, 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 is as follows:
Twelve Months Ended
December 31,
2021 2020
Number of options 18,961 18,961
Exercise price of options $9.20 - $11.02
$9.20 - $11.02
Restricted stock units 1,837,937 1,823,573
Convertible Notes 5,005,000 5,005,000
Convertible Notes warrants 5,005,000 5,005,000
Common stock warrants 8,916,274 6,280,251
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 9, Long-term Debt, is settled in cash and the conversion premium is settled in shares.
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
13. 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:
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 December 31, 2021 18,961 $ 10.43 4.0 $ -
As of December 31, 2021, there was no unrecognized compensation cost related to stock options. During the twelve months ended December 31, 2021 and 2020, there was no stock-based compensation expense recognized by the Company related to stock options. As of December 31, 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 consolidated statements of operations.
Restricted Stock Units
During the twelve months ended December 31, 2021, the Company granted an aggregate of 532,899 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
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1, 2022, March 1, 2023 and March 1, 2024; (iii) 230,350 PSUs vesting on April 1, 2024 and (iv) 65,504 time-based RSUs vesting on May 28, 2022.
During the twelve months ended December 31, 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 twelve months ended December 31, 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 532,899 8.98
Vested (499,826) 2.64
Canceled, forfeited (71,669) 5.00
Outstanding at December 31, 2021 1,762,086 $ 4.97
(a)Includes PSUs at 100% attainment.
As of December 31, 2021, there was $3.9 million in unrecognized compensation costs related to unvested RSUs that is expected to be recognized over a weighted average period of 1.8 years.
During the twelve months ended December 31, 2021 and 2020, the Company recognized $3.5 million and $2.7 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 consolidated statements of operations.
14. 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 December 31, 2021 and 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 December 31, 2021, there were 27,973,153 shares of common stock issued and 27,286,647 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 Agreement, the Company became obligated to issue detachable warrants to purchase up to 6,250,000 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 9, Long-term Debt, for additional information.
As of December 31, 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 December 31, 2021, warrants to purchase
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9,231,146 shares of common stock were issued and remain outstanding. During the twelve months ended December 31, 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 twelve months ended December 31, 2021, the Company recognized $0.3 million of non-cash transactions in connection with warrants exercised.
Accumulated Other Comprehensive Income (Loss)
Changes in AOCI attributable to Horizon Global by component, net of tax, for the twelve months ended December 31, 2021 and 2020 are as follows:
Foreign Currency Translation and Other
(dollars in thousands)
Balance at January 1, 2020 $ (9,790)
Net unrealized gains arising during the period 3,250
Net change 3,250
Balance at December 31, 2020 $ (6,540)
Net unrealized losses arising during the period (3,170)
Net change (3,170)
Balance at December 31, 2021 $ (9,710)
15. 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 operating segment was sold on September 19, 2019, and is presented as a discontinued operation in the accompanying 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 ASC 205-20, “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 aftermarket, automotive OEMs, automotive OESs, industrial and retail customers in the agricultural, automotive, construction, industrial, marine, military, recreational vehicle, trailer and utility end markets. Products include vehicle trailer hitches, brake controllers, cargo management, heavy-duty towing products, jacks and couplers, protection/securing systems, trailer structural and electrical components, tow bars, vehicle roof racks 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.
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company’s operating segment activity and total assets are as follows:
Twelve Months Ended
December 31,
2021 2020
(dollars in thousands)
Net Sales
Horizon Americas $ 456,410 $ 382,380
Horizon Europe-Africa 325,710 278,850
Total $ 782,120 $ 661,230
Operating Profit (Loss)
Horizon Americas $ 42,580 $ 27,950
Horizon Europe-Africa (10,530) (8,390)
Corporate (24,830) (26,470)
Total $ 7,220 $ (6,910)
Capital Expenditures
Horizon Americas $ 7,850 $ 3,670
Horizon Europe-Africa 12,610 9,640
Corporate - -
Total $ 20,460 $ 13,310
Depreciation of Property and Equipment and Amortization of Intangibles
Horizon Americas $ 7,520 $ 8,420
Horizon Europe-Africa 14,300 14,280
Corporate 180 210
Total $ 22,000 $ 22,910
December 31,
2021 2020
(dollars in thousands)
Total Assets
Horizon Americas $ 249,610 $ 212,570
Horizon Europe-Africa 173,810 206,900
Corporate 15,500 37,020
Total $ 438,920 $ 456,490
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company’s net sales and net fixed assets attributed to each subsidiary’s country of domicile are as follows:
Twelve Months Ended
December 31,
2021 2020
(dollars in thousands)
Net Sales
Total U.S. $ 444,040 $ 370,840
Non-U.S.
Germany 244,580 207,450
Other Europe 68,860 63,470
Other Americas 12,370 11,540
South Africa 12,270 7,930
Total non-U.S. 338,080 290,390
Total $ 782,120 $ 661,230
During the twelve months ended December 31, 2021 and 2020, external export sales from the U.S. to other countries were $67.0 million and $44.8 million, respectively.
December 31,
2021 2020
(dollars in thousands)
Property and equipment, net
Total U.S. $ 24,780 $ 22,720
Non-U.S.
Germany 30,880 36,690
Other Europe 9,840 7,940
South Africa 4,280 4,340
Other Americas 1,830 2,400
Total non-U.S. 46,830 51,370
Total $ 71,610 $ 74,090
16. Income Taxes
The Company’s loss from continuing operations before income tax is as follows:
Twelve Months Ended
December 31,
2021 2020
(dollars in thousands)
Domestic $ (12,860) $ (22,430)
Foreign (20,420) (16,630)
Loss from continuing operations before income tax $ (33,280) $ (39,060)
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The income tax benefit (expense) is as follows:
Twelve Months Ended
December 31,
2021 2020
(dollars in thousands)
Current income tax benefit (expense):
Federal $ 230 $ 770
State and local (240) (180)
Foreign (1,500) (1,070)
Total current income tax (expense) (1,510) (480)
Deferred income tax benefit:
Federal 110 170
State and local - 180
Foreign 1,560 1,710
Total deferred income tax benefit 1,670 2,060
Income tax benefit $ 160 $ 1,580
The components of deferred taxes are as follows:
December 31,
2021 2020
(dollars in thousands)
Deferred tax assets:
Receivables, net $ 550 $ 510
Inventories 2,070 2,310
Disallowed interest deduction 31,850 25,690
Operating lease liabilities 11,740 14,660
Accrued liabilities and other long-term liabilities 5,980 8,890
Tax loss and credit carryforwards 31,640 31,570
Gross deferred tax asset 83,830 83,630
Valuation allowances (61,860) (55,180)
Net deferred tax asset 21,970 28,450
Deferred tax liabilities:
Property and equipment, net (730) (2,090)
Other intangibles, net (10,840) (12,270)
Operating lease right-of-use assets (9,470) (11,870)
Other (1,100) (4,070)
Gross deferred tax liability (22,140) (30,300)
Net deferred tax liability $ (170) $ (1,850)
ASC 740, “Income Taxes,” requires that companies assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified. A cumulative loss in recent years is significant negative evidence in considering whether deferred tax assets are realizable and also restricts the amount of reliance that can be placed on projections of future taxable income to support the recovery of deferred tax assets.
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In prior years, the Company established valuation allowances against substantially all of its net deferred tax assets of its domestic and certain other foreign jurisdictions. As of December 31, 2021 and December 31, 2020, certain foreign jurisdictions were in a three-year cumulative pretax loss position; therefore, the Company recorded valuation allowances of $0.8 million and $0.5 million against certain of its deferred tax assets, respectively. In addition, as of December 31, 2020, the deferred tax assets in certain foreign jurisdictions that previously had recognized a valuation allowance were deemed realizable; therefore, during the twelve months ended December 31, 2020, the Company recorded a $2.6 million tax benefit. The ultimate realization of these deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
As of December 31, 2021, the Company has recorded deferred tax assets for $37.9 million of federal operating loss carryforward, $51.5 million of various state operating loss carryforwards and $77.5 million of various foreign operating loss carryforwards. The federal loss carryforward has an indefinite carryforward period and the majority of the state tax loss carryforwards expire between 2028 through 2038; however, certain states now have indefinite carryforward periods. In addition, the majority of foreign losses have indefinite carryforward periods. A significant amount of the deferred tax assets discussed above are offset by a corresponding valuation allowance within the jurisdiction to which the deferred tax assets relate.
A reconciliation of the Company’s provision for income taxes to income tax benefit computed at the U.S. federal statutory rate is as follows:
Twelve Months Ended
December 31,
2021 2020
(dollars in thousands)
U.S. federal statutory rate 21 % 21 %
Tax at U.S. federal statutory rate $ 6,990 $ 8,210
State and local taxes, net of federal tax benefit (expense) (220) 1,390
Differences in statutory foreign tax rates 1,660 2,810
Uncertain tax positions 240 (20)
Gain on debt extinguishment of PPP Loan 1,580 -
Tax credits 360 250
Net change in valuation allowance (9,170) (4,030)
Restructuring charges (870) (5,030)
Transition tax 220 700
Other, net (630) (2,700)
Income tax benefit $ 160 $ 1,580
No deferred taxes have been provided for taxes that would result upon repatriation of our foreign investments to the U.S. as it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations, which should not give rise to additional income tax liabilities as a result of the distribution of such earnings.
Uncertain Tax Positions
As of December 31, 2021 and 2020, the Company had $0.1 million and $0.2 million, respectively, of uncertain tax positions (“UTPs”). If the UTPs were recognized, the impact to the Company’s effective tax rate would be to increase income tax benefit for the twelve months ended December 31, 2021 and 2020, by $0.1 million and $0.2 million, respectively.
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation of the change in the UTPs as of December 31, 2021 and 2020 is as follows:
Uncertain Tax Positions
(dollars in thousands)
Balances at January 1, 2020 $ 210
Tax positions related to current year:
Additions -
Reductions -
Tax positions related to prior years:
Additions -
Reductions -
Settlements -
Lapses in the statutes of limitations -
Cumulative translation adjustment 10
Balance at December 31, 2020 $ 220
Tax positions related to current year:
Additions -
Reductions -
Tax positions related to prior years:
Additions -
Reductions -
Settlements -
Lapses in the statutes of limitations (120)
Cumulative translation adjustment (10)
Balance at December 31, 2021 $ 90
The Company recognizes interest and penalties on UTPs as income tax expense. During the twelve months ended December 31, 2021 and 2020, the Company recognized $0.1 million benefit and no expense, respectively, related to interest and penalties. During the twelve months ended December 31, 2021 and 2020, the change in UTPs and liabilities for interest and penalties primarily relates to foreign currency translation and expiration of statute of limitations during 2021 and foreign currency translation during 2020. As of December 31, 2021 and 2020, the Company had a liability of $0.1 million and $0.2 million, respectively, related to interest and penalties.
Management monitors changes in tax statutes and regulations and the issuance of judicial decisions to determine the potential impact to UTPs. As of December 31, 2021, the Company estimated $0.1 million of UTPs are expected to be released in the next twelve months.
Income tax returns are filed in multiple domestic and foreign jurisdictions, which are subject to examinations by taxing authorities. As of December 31, 2021, the Company is subject to U.S. federal tax examination for tax years 2018 through 2021. The Company is subject to state, local, and foreign income tax examinations for tax years 2014 through 2021. The Company’s German jurisdiction is subject to German federal tax examination for tax years 2018 through 2021. The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next twelve months we may reach resolution of income tax examinations in one or more foreign jurisdictions. The Company does not believe that the results of these examinations will have a significant impact on the Company’s tax position or its effective tax rate.
HORIZON GLOBAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Other Expense, Net
Other expense, net consists of the following components:
Twelve Months Ended
December 31,
2021 2020
(dollars in thousands)
Foreign currency (loss) gain $ (4,120) $ 910
Net loss on disposition of business (3,240) -
Customer early pay discounts (960) (1,410)
Other, net (90) 30
Total $ (8,410) $ (470)
18. Subsequent Events
Senior Term Loan Credit Agreement Amendment
On February 10, 2022, the Company entered into an amendment to its Senior Term Loan Credit Agreement (the “Senior Term Loan Credit Agreement Amendment”) with Atlantic Park. The Senior Term Loan Credit Agreement Amendment provides for a $35.0 million draw on the Company’s existing delayed draw term loan facility under the Senior Term Loan Credit Agreement and allows the net proceeds to be used for working capital purposes and to fund low-cost country expansion in the Company’s Horizon Europe-Africa operating segment. All amounts drawn under the delayed draw facility are governed by the existing terms of the Company’s Senior Term Loan Credit Agreement.
Pursuant to the Senior Term Loan Credit Agreement Amendment, the Company issued warrants to Atlantic Park to purchase up to 975,000 shares of the Company’s common stock, with an exercise price of $9.00 per share. The warrants are exercisable at any time prior to February 10, 2027, provided that the warrants may not be exercised and shares of common stock may not be issued pursuant to the warrants unless and until the Company obtains shareholder approval permitting the issuance of such shares of common stock in accordance with the rules of the New York Stock Exchange.
On February 10, 2022, the Company executed a commitment letter with Corre Partners Management L.L.C. (“Corre”) to issue, solely at the Company’s option, up to $40.0 million of Series B Preferred Stock. To the extent issued, the net proceeds of the Series B Preferred Stock may be used to repay up to $35.0 million of the Company’s outstanding Convertible Notes at maturity and, following such repayment, for general corporate purposes. If issued, the Series B Preferred Stock would accrue dividends in kind at a rate of 11.0% per annum. The Series B Preferred Stock would be perpetual, but subject to voluntary redemption by the Company at its option and subject to mandatory redemption upon a change in control or the one-year anniversary of the maturity of the Senior Term Loan. Additionally, if issued, if the Series B Preferred Stock is not redeemed after the occurrence of certain events, it would be convertible into shares of the Company’s common stock, at the option of Corre and subject to shareholder approval. The commitment letter expires on July 1, 2022.
The Company estimates it incurred $1.4 million of debt issuance costs and fees associated with the above transactions. The transactions will be accounted for in the first quarter of 2022.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. 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 the end of the period covered by this Annual Report on Form 10-K, 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 December 31, 2021, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that they would meet their objectives.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the Company. Under the supervision of the Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework (2013).” Based on its evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2021.
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 December 31, 2021, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
Not applicable.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Item 10 regarding our directors and corporate governance matters is incorporated by reference herein to the proxy statement for the Company’s 2022 Annual Meeting of Stockholders (the “Proxy Statement”) sections entitled “Proposal 1 - Election of Directors” and “Corporate Governance.” The information required by Item 10 regarding our executive officers appears as a supplementary item following Item 4 under Part I of this Annual Report on Form 10-K under the title “Information About Our Executive Officers.”
The Spirit and The Letter. Effective as of July 1, 2015, the Board adopted the Company’s code of conduct, titled “The Spirit and The Letter,” that applies to all directors and employees, including the Company’s principal executive officer, principal financial officer, and other persons performing similar executive management functions. The Spirit and The Letter is posted on the Company’s website, www.horizonglobal.com, in the Corporate Governance subsection of the Investor Relations section. All amendments to The Spirit and The Letter, if any, will be also posted on the Company’s website, along with all waivers, if any, of The Spirit and The Letter involving senior officers.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference herein to the Proxy Statement section entitled “Compensation Discussion and Analysis.”

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 is incorporated by reference herein to the Proxy Statement section entitled “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is incorporated by reference herein to the Proxy Statement section entitled “Transactions with Related Parties.”

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
Information about aggregate fees billed to us by our principal accountant, Deloitte & Touche LLP (PCAOB ID No. 34) required by Item 14 is incorporated by reference herein to the Proxy Statement section entitled “Proposal 3 - Ratification of Appointment of Independent Registered Public Accounting Firm.”
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
(a) Listing of Documents
(1) Financial Statements
The Company’s consolidated financial statements included in Item 8 hereof, as required at December 31, 2021 and December 31, 2020, and for the periods ended December 31, 2021 and December 31, 2020, consist of the following:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders’ Equity
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Financial Statement Schedule of the Company appended hereto, as required for the periods ended December 31, 2021, and December 31, 2020, consists of the following:
Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not required, or the information is otherwise included in the financial statements or the notes thereto.
(3) Exhibits
Exhibits Index:
3.1(p) Amended and Restated Certificate of Incorporation of Horizon Global Corporation.
3.2(b) Amended and Restated By-laws of Horizon Global Corporation.
4.1(i) Indenture, dated as of February 1, 2017, by and between the Company and Wells Fargo Bank, National Association, as Trustee.
4.2(i) First Supplemental Indenture, dated as of February 1, 2017, by and between the Company and Wells Fargo Bank, National Association, as Trustee.
4.3(r) Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934.
4.4(n) Form of Warrant
4.5(n) Form of Warrant (Relating to Series A Preferred Stock).
4.6(v) Form of Warrant (Relating to Term Loan Agreement)
4.7 Form of Warrant (Relating to Term Loan Agreement Amendment)
10.1(c) Term Loan Credit Agreement, dated as of June 30, 2015, among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative and collateral agent.
10.2(h) First Amendment, dated as of September 19, 2016, to the Term Loan Credit Agreement, dated as of June 30, 2015, among Horizon Global Corporation, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent.
10.3(k) Second Amendment, dated as of January 11, 2017, to the Term Loan Credit Agreement, dated as of June 30, 2015, among Horizon Global Corporation, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent.
10.4(j)* 2017 Replacement Term Loan Amendment (Third Amendment to Credit Agreement), dated as of March 31, 2017, to the Term Loan Credit Agreement, dated as of June 30, 2015, by and among Horizon Global Corporation, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
10.5(l) 2018 Replacement Term Loan Amendment Agreement (Fourth Amendment to Credit Agreement), dated as of February 16, 2018, among Horizon Global Corporation, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
10.6(m) Fourth Amendment to Credit Agreement, dated as of July 31, 2018, to the Term Loan Credit Agreement, dated as of June 30, 2015, by and among Horizon Global Corporation, the lenders party thereto and JPMorgan Chase Bank, N.A. as administrative agent.
10.7(d)** Horizon Global Corporation Executive Retirement Plan effective as of July 1, 2015.
10.8(e)** Horizon Global Corporation Executive Severance/Change of Control Policy effective as of July 1, 2015.
10.9(a) Form of Indemnification Agreement.
10.10(e)** Form of Nonqualified Stock Option Agreement - 2015 LTI - under the 2015 Equity and Incentive Compensation Plan.
10.11(e)** Form of Nonqualified Stock Option Agreement - Special Award - under the 2015 Equity and Incentive Compensation Plan.
10.12(f)** Form of Restricted Stock Units Award Agreement - CEO Grant - under the Amended and Restated 2015 Equity and Incentive Compensation Plan.
10.13(f)** Form of Performance Share Units Agreement - Annual Grant - under the Amended and Restated 2015 Equity and Incentive Compensation Plan.
10.14(f)** Form of Nonqualified Stock Option Agreement - Annual Grant - under the Amended and Restated 2015 Equity and Incentive Compensation Plan.
10.15(g)** Horizon Global Corporation Amended and Restated 2015 Equity and Incentive Compensation Plan.
10.16(l)** Form of Restricted Stock Units Agreement - Annual Grant - under the Amended and Restated 2015 Equity and Incentive Compensation Plan.
10.17(l)** Form of Restricted Stock Units Award Agreement - CEO Award Program - under the Amended and Restated 2015 Equity and Incentive Compensation Plan.
10.18(l)** Form of Performance Share Units Agreement - Annual Grant - under the Amended and Restated 2015 Equity and Incentive Compensation Plan.
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10.19(l)** Form of Restricted Stock Units Award Agreement - Annual CEC Grant - under the Amended and Restated 2015 Equity and Incentive Compensation Plan.
10.20(l)** Form of Restricted Stock Units Award Agreement - Annual ELT Grant - under the Amended and Restated 2015 Equity and Incentive Compensation Plan.
10.21(m)** Form of Restricted Stock Units Award Agreement - Board of Directors Grant - under the Amended and Restated 2015 Equity and Incentive Compensation Plan.
10.22(h) Investors’ Rights Agreement, dated as of October 4, 2016, by and between the Company and Parcom Deutschland I GmbH & Co. KG.
10.23(i) Base Call Option Confirmation, dated as of January 26, 2017, by and between the Company and JPMorgan Chase Bank, National Association, London Branch.
10.24(i) Additional Call Option Confirmation, dated as of January 27, 2017, by and between the Company and JPMorgan Chase Bank, National Association, London Branch.
10.25(i) Base Warrant Confirmation, dated as of January 26, 2017, by and between the Company and JPMorgan Chase Bank, National Association, London Branch.
10.26(i) Additional Warrant Confirmation, dated as of January 27, 2017, by and between the Company and JPMorgan Chase Bank, National Association, London Branch.
10.27(i) Base Call Option Confirmation, dated as of January 26, 2017, by and between the Company and Wells Fargo Bank, National Association.
10.28(i) Additional Call Option Confirmation, dated as of January 27, 2017, by and between the Company and Wells Fargo Bank, National Association.
10.29(i) Base Warrant Confirmation, dated as of January 26, 2017, by and between the Company and Wells Fargo Bank, National Association.
10.30(i) Additional Warrant Confirmation, dated as of January 27, 2017, by and between the Company and Wells Fargo Bank, National Association.
10.31(i) Base Call Option Confirmation, dated as of January 26, 2017, by and between the Company and Bank of America, N.A.
10.32(i) Additional Call Option Confirmation, dated as of January 27, 2017, by and between the Company and Bank of America, N.A.
10.33(i) Base Warrant Confirmation, dated as of January 26, 2017, by and between the Company and Bank of America, N.A.
10.34(i) Additional Warrant Confirmation, dated as of January 27, 2017, by and between the Company and Bank of America, N.A.
10.35(g) Updated Exhibit A to Horizon Global Corporation Executive Severance/Change of Control Policy effective as of November 6, 2018.
10.36(o) Fifth Amendment to Credit Agreement, dated as of February 20, 2019, to the Term Loan Credit Agreement, dated as of June 30, 2015, by and among Horizon Global Corporation, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
10.37(o) Sixth Amendment to Credit Agreement, dated as of March 15, 2019, to the Term Loan Credit Agreement, dated as of June 30, 2015, by and among Horizon Global Corporation, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
10.38(o) Seventh Amendment to Credit Agreement, dated as of May 7, 2019, to the Term Loan Credit Agreement, dated as of June 30, 2015, by and among Horizon Global Corporation, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
10.39(p) Omnibus Consent, Waiver and Amendment dated as of June 11, 2019 by and among Horizon Global Corporation, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
10.40(q) Consent and Amendment dated September 24, 2019, by and among Horizon Global Corporation, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent.
10.41(q) Form of Performance Share Units Award Agreement - Signing Grant.
10.42(s)* Loan and Security Agreement dated March 13, 2020, by and among Horizon Global Americas Inc. and Cequent Towing Products of Canada Ltd., as borrowers, Horizon Global Corporation and Horizon Global Company LLC, as guarantors, the Lenders party thereto and Encina Business Credit, LLC, as Agent.
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10.43(s)* Ninth Amendment to Credit Agreement dated March 13, 2020, by and among Horizon Global Corporation, the financial institutions party thereto, as Lenders, and JPMorgan Chase Bank, N.A., as Administrative Agent.
10.44(t) Successor Agent Agreement and Amendment to Credit Agreement, dated April 21, 2020, by and among JPMorgan Chase Bank, N.A., as resigning administrative agent and collateral agent, Cortland Capital Market Services LLC as successor administrative agent and collateral agent, the financial institutions party thereto as Lenders, Horizon Global Corporation and certain of its subsidiaries party thereto as Loan Parties.
10.45(t) Amendment, Limited Waiver and Consent to Credit Agreement dated May 15, 2020 and deemed effective as of April 1, 2020, by and among Horizon Global Corporation, the financial institutions party thereto, as Lenders, and Cortland Capital Market Services LLC (as successor to JPMorgan Chase Bank, N.A.), as Administrative Agent.
10.46(t) Horizon Global Corporation 2020 Equity and Incentive Compensation Plan.
10.47(t) Form of Restricted Stock Units Award Agreement - Board of Directors Grant under the Horizon Global Corporation 2020 Equity and Incentive Stock Plan.
10.48(u)* 2020 Replacement Term Loan Amendment (Eleventh Amendment to Credit Agreement) dated July 6, 2020 by and among Horizon Global Corporation, certain Subsidiaries of Horizon Global Corporation party thereto, as guarantors, Cortland Capital Market Services LLC (as successors to JPMorgan Chase Bank, N.A.), as administrative agent, and the financial institutions party thereto, as lenders.
10.49(u)* Second Amendment to Loan and Security Agreement dated July 24, 2020, by and among Horizon Global Americas Inc. and Cequent Towing Products of Canada Ltd., as borrowers, Horizon Global Corporation and Horizon Global Company LLC, as guarantors, the lenders party thereto and Encina Business Credit, LLC, as agent for the lenders.
10.50(w)* Limited Consent and Third Amendment to Loan and Security Agreement dated February 2, 2021, by and among Horizon Global Americas Inc. and Cequent Towing Products of Canada Ltd., as borrowers, Horizon Global Corporation and Horizon Global Company LLC, as guarantors, the lenders party thereto and Encina Business Credit, LLC, as agent for the Lenders.
10.51(w)* Term Loan Credit Agreement dated February 2, 2021, by and among Horizon Global Corporation, the Lenders party thereto, and Atlantic Park Strategic Capital Fund, L.P., as Administrative Agent and Collateral Agent.
10.52(x)* 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.
10.53(y)* Fifth Amendment to Loan and Security Agreement dated September 17, 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 Eclipse Business Capital LLC (f/k/a Encina Business Credit, LLC), as agent for the Lenders.
10.54* Sixth Amendment to Loan and Security Agreement dated December 30, 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 Eclipse Business Capital LLC (f/k/a Encina Business Credit, LLC), as agent for the Lenders.
10.55* Limited Consent and Seventh Amendment to Loan and Security Agreement dated February 10, 2022, 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 Eclipse Business Capital LLC (f/k/a Encina Business Credit, LLC), as agent for the Lenders.
10.56* Consent and First Amendment to Credit Agreement dated February 10, 2022, by and among Horizon Global Corporation, the Lenders party thereto, and Atlantic Park Strategic Capital Fund, L.P., as Administrative Agent and Collateral Agent.
21.1 Horizon Global Corporation Subsidiary List.
23.1 Consent of Independent Registered Public Accounting Firm.
31.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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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 The following materials from Horizon Global Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statement of Operations, (iii) the Consolidated Statement of Comprehensive Income (Loss), (iv) the Consolidated Statement of Cash Flows, (v) the Consolidated Statement of Shareholders’ Equity, (vi) Notes to Consolidated Financial Statements, and (vii) document and entity information.
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
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(a) Incorporated by reference to the Exhibits filed with our Registration Statement on Form S-1 filed on March 31, 2015 (Reg. No. 333-203138).
(b) Incorporated by reference to the Exhibits filed with our Current Report on Form 8-K filed on February 20, 2019 (Reg. No. 001-37427).
(c) Incorporated by reference to the Exhibits filed with our Current Report on Form 8-K filed on July 6, 2015 (File No. 001-37427).
(d) Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on August 11, 2015 (File No. 001-37427).
(e) Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on November 10, 2015 (File No. 001-37427).
(f) Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on May 3, 2016 (File No. 001-37427).
(g) Incorporated by reference to Exhibits filed with our Annual Report on Form 10-K filed on March 18, 2019 (File No. 001-37427).
(h) Incorporated by reference to the Exhibits filed with our Current Report on Form 8-K filed on October 11, 2016 (File No. 001-37427).
(i) Incorporated by reference to the Exhibits filed with our Current Report on Form 8-K filed on February 1, 2017 (File No. 001-37427).
(j) Incorporated by reference to the Exhibits filed with our Current Report on Form 8-K filed on April 6, 2017 (File No. 001-37427).
(k) Incorporated by reference to the Exhibits filed with our Annual Report on Form 10-K filed on March 10, 2017 (File No. 001-37427).
(l) Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on May 3, 2018 (File No. 001-37427).
(m) Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on August 7, 2018 (File No. 001-37427).
(n) Incorporated by reference to the Exhibits filed with our Current Report on Form 8-K filed on March 18, 2019 (File No. 001-37427).
(o) Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on May 9, 2019 (File No. 001-37427).
(p) Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on August 8, 2019 (File No. 001-37427).
(q) Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on November 12, 2019 (File No. 001-37427).
(r) Incorporated by reference to the Exhibits filed with our Annual Report on Form 10-K filed on March 16, 2020 (File No. 001-37427).
(s) Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on May 18, 2020 (File No. 001-37427).
(t) Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on August 7, 2020 (File No. 001-37427).
(u) Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on November 5, 2020 (File No. 001-37427).
(v) Incorporated by reference to the Exhibits filed with our Current Report on Form 8-K filed on February 3, 2021 (File No. 001-37427).
(w) Incorporated by reference to the Exhibits filed with our Annual Report on Form 10-K filed on March 11, 2021 (File No. 001-37427).
(x) Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on August 3, 2021 (File No. 001-37427).
(y) Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on November 4, 2021 (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.
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** Management contracts and compensatory plans or arrangement required to be filed as an exhibit pursuant Item 15(b) of Form 10-K.
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