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

 
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
 
For the Quarterly Period Ended September 30, 2019
or

o

 
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period from                  to                  .
Commission file number 001-37427
HORIZON GLOBAL CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
(State or other jurisdiction of
incorporation or organization)
 
47-3574483
(IRS Employer
Identification No.)
2600 W. Big Beaver Road, Suite 555
Troy, Michigan 48084
(Address of principal executive offices, including zip code)
(248) 593-8820
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
HZN
 
New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No o.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x    No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer x
 
Non-accelerated filer o
 
Smaller reporting company o
 
Emerging growth company x
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes x No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No x
As of November 7, 2019, the number of outstanding shares of the Registrant’s common stock was 25,387,388 shares.



HORIZON GLOBAL CORPORATION
Index
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1


Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date they are made and give our current expectations or forecasts of future events. These forward-looking statements can be identified by the use of forward-looking words, such as “may,” “could,” “should,” “estimate,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “target,” “plan” or other comparable words, or by discussions of strategy that may involve risks and uncertainties.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties which could materially affect our business, financial condition or future results including, but not limited to, risks and uncertainties with respect to: the Company’s leverage; liabilities and restrictions imposed by the Company’s debt instruments; market demand; competitive factors; supply constraints; material and energy costs; technology factors; litigation; government and regulatory actions including the impact of any tariffs, quotas or surcharges; the Company’s accounting policies; future trends; general economic and currency conditions; various conditions specific to the Company’s business and industry; the success of the Company’s action plan, including the actual amount of savings and timing thereof; the success of our business improvement initiatives in Europe-Africa, including the amount of savings and timing thereof; the Company’s exposure to product liability claims from customers and end users, and the costs associated therewith; the Company’s ability to meet its covenants in the agreements governing its debt; or the Company’s ability to maintain compliance with the New York Stock Exchange’s continued listing standards and other risks that are discussed in Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The risks described in our Annual Report and elsewhere in this report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deemed to be immaterial also may materially adversely affect our business, financial position and results of operations or cash flows.
The cautionary statements set forth above should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We caution readers not to place undue reliance on the statements, which speak only as of the date of this report. We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statement to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as otherwise required by law.
We disclose important factors that could cause our actual results to differ materially from our expectations implied by our forward-looking statements under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report. These cautionary statements qualify all forward-looking statements attributed to us or persons acting on our behalf. When we indicate that an event, condition or circumstance could or would have an adverse effect on us, we mean to include effects upon our business, financial and other conditions, results of operations, prospects and ability to service our debt.



2


PART I. FINANCIAL INFORMATION

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

 
September 30,
2019

December 31,
2018
Assets
 

 

Current assets:
 

 

Cash and cash equivalents
 
$
16,360


$
27,650

Receivables, net of allowance for doubtful accounts of approximately $5.0 million and $4.8 million at September 30, 2019 and December 31, 2018, respectively
 
93,480


95,170

Inventories
 
141,150


152,200

Prepaid expenses and other current assets
 
9,480


8,270

Current assets held-for-sale
 

 
36,080

Total current assets
 
260,470

 
319,370

Property and equipment, net
 
78,670


86,500

Operating lease right-of-use assets
 
56,170

 

Goodwill
 
4,200


4,500

Other intangibles, net
 
60,350


69,400

Deferred income taxes
 
440

 
660

Non-current assets held-for-sale
 

 
34,790

Other assets
 
5,700


6,130

Total assets
 
$
466,000

 
$
521,350

Liabilities and Shareholders' Equity
 

 

Current liabilities:
 

 

Short-term borrowings and current maturities, long-term debt
 
$
24,270


$
13,860

Accounts payable
 
79,440


102,350

Short-term operating lease liabilities
 
9,850

 

Current liabilities held-for-sale
 

 
28,080

Accrued liabilities
 
53,020


58,520

Total current liabilities
 
166,580

 
202,810

Gross long-term debt
 
214,930

 
382,220

Unamortized debt issuance costs and discount
 
(34,200
)
 
(31,570
)
Long-term debt
 
180,730

 
350,650

Deferred income taxes
 
8,280


12,620

Long-term operating lease liabilities
 
50,890

 

Non-current liabilities held-for-sale
 

 
1,740

Other long-term liabilities
 
20,770


19,750

Total liabilities
 
427,250

 
587,570

Contingencies (See Note 13)
 


 


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

 

Common stock, $0.01 par: Authorized 400,000,000 shares; 26,073,894 shares issued and 25,387,388 outstanding at September 30, 2019, and 25,866,747 shares issued and 25,180,241 outstanding at December 31, 2018
 
250

 
250

Common stock warrants exercisable for 6,487,674 shares issued and outstanding at September 30, 2019; none issued and outstanding at December 31, 2018
 
10,720

 

Paid-in capital
 
162,760

 
160,990

Treasury stock, at cost: 686,506 shares at September 30, 2019 and December 31, 2018
 
(10,000
)
 
(10,000
)
Accumulated deficit
 
(110,390
)
 
(222,720
)
Accumulated other comprehensive (loss) income
 
(11,250
)
 
7,760

Total Horizon Global shareholders' equity (deficit)
 
42,090

 
(63,720
)
Noncontrolling interest
 
(3,340
)
 
(2,500
)
Total shareholders' equity (deficit)
 
38,750

 
(66,220
)
Total liabilities and shareholders' equity
 
$
466,000

 
$
521,350

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

3


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

 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
Net sales
 
$
177,850

 
$
194,030

 
$
548,170

 
$
576,250

Cost of sales
 
(149,560
)
 
(159,500
)
 
(460,010
)
 
(472,120
)
Gross profit
 
28,290

 
34,530

 
88,160

 
104,130

Selling, general and administrative expenses
 
(41,100
)
 
(37,680
)
 
(113,140
)
 
(134,210
)
Impairment of goodwill and intangible assets
 

 
(26,640
)
 

 
(125,770
)
Net gain (loss) on dispositions of property and equipment
 
50

 
(110
)
 
1,500

 
(520
)
Operating loss
 
(12,760
)
 
(29,900
)
 
(23,480
)
 
(156,370
)
Other expense, net
 
(1,640
)
 
(1,040
)
 
(6,610
)
 
(7,410
)
Interest expense
 
(24,120
)
 
(7,590
)
 
(50,270
)
 
(19,580
)
Loss from continuing operations before income tax
 
(38,520
)
 
(38,530
)
 
(80,360
)
 
(183,360
)
Income tax benefit
 
1,020

 
1,420

 
2,330

 
15,770

Net loss from continuing operations
 
(37,500
)
 
(37,110
)
 
(78,030
)
 
(167,590
)
Income from discontinued operations, net of tax
 
182,750

 
4,110

 
189,520

 
9,670

Net income (loss)
 
145,250

 
(33,000
)
 
111,490


(157,920
)
Less: Net loss attributable to noncontrolling interest
 
(260
)
 
(240
)
 
(840
)
 
(720
)
Net income (loss) attributable to Horizon Global
 
$
145,510

 
$
(32,760
)
 
$
112,330

 
$
(157,200
)
Net income (loss) per share attributable to Horizon Global:
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(1.47
)
 
$
(1.47
)
 
$
(3.05
)
 
$
(6.67
)
Discontinued operations
 
7.21

 
0.16

 
7.50

 
0.39

Total
 
5.74

 
(1.31
)
 
4.45

 
(6.28
)
Diluted:
 
 
 
 
 
 
 
 
Continuing operations
 
(1.47
)
 
(1.47
)
 
(3.05
)
 
(6.67
)
Discontinued operations
 
7.21

 
0.16

 
7.50

 
0.39

Total
 
5.74

 
(1.31
)
 
4.45

 
(6.28
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
25,329,492

 
25,101,847

 
25,267,310

 
25,028,072

Diluted
 
25,329,492

 
25,101,847

 
25,267,310

 
25,028,072



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

4


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

 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
Net income (loss)
 
$
145,250

 
$
(33,000
)
 
$
111,490

 
$
(157,920
)
Other comprehensive loss, net of tax:
 
 
 
 
 
 
 
 
Foreign currency translation and other
 
(1,320
)
 
(680
)
 
(30
)
 
(4,400
)
Derivative instruments
 
(440
)
 
640

 
(1,720
)
 
2,960

Total other comprehensive loss, net of tax
 
(1,760
)
 
(40
)
 
(1,750
)
 
(1,440
)
Total comprehensive income (loss)
 
143,490

 
(33,040
)
 
109,740

 
(159,360
)
Less: Comprehensive loss attributable to noncontrolling interest
 
(250
)
 
(240
)
 
(830
)
 
(790
)
Comprehensive income (loss) attributable to Horizon Global
 
$
143,740

 
$
(32,800
)
 
$
110,570

 
$
(158,570
)


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

 

5


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


Nine months ended
September 30,


2019

2018
Cash Flows from Operating Activities:




Net income (loss)
 
$
111,490

 
$
(157,920
)
Less: Net income from discontinued operations
 
189,520

 
9,670

Net loss from continuing operations
 
(78,030
)
 
(167,590
)
 
 

 

Adjustments to reconcile net loss from continued operations to net cash used for operating activities:




Net (gain) loss on dispositions of property and equipment

(1,500
)
 
520

Depreciation

11,980

 
9,410

Amortization of intangible assets

4,800

 
5,640

Write off of operating lease assets
 
4,250

 

Impairment of goodwill and intangible assets


 
125,770

Amortization of original issuance discount and debt issuance costs

18,570

 
6,050

Deferred income taxes

(3,390
)
 
(3,370
)
Non-cash compensation expense

1,790

 
1,430

Paid-in-kind interest

7,620

 

Increase in receivables

(4,680
)
 
(31,950
)
Decrease in inventories

1,920

 
5,630

(Increase) decrease in prepaid expenses and other assets

(2,770
)
 
1,150

Decrease in accounts payable and accrued liabilities

(15,560
)
 
(27,450
)
Other, net

(10,800
)
 
220

Net cash used for operating activities for continuing operations
 
(65,800
)
 
(74,540
)
Cash Flows from Investing Activities:
 
 
 
 
Capital expenditures
 
(8,460
)
 
(9,660
)
Net proceeds from sale of business
 
214,570

 

Net proceeds from disposition of property and equipment
 
1,470

 
(280
)
Net cash provided by (used for) investing activities for continuing operations
 
207,580

 
(9,940
)
Cash Flows from Financing Activities:
 
 
 
 
Proceeds from borrowings on credit facilities
 
13,780

 
12,550

Repayments of borrowings on credit facilities
 
(6,520
)
 
(14,390
)
Proceeds from Second Lien Term Loan, net of issuance costs
 
35,520

 
45,430

Repayments of borrowings on First Lien Term Loan, inclusive of transaction costs
 
(173,430
)
 
(6,490
)
Proceeds from ABL Revolving Debt, net of issuance costs
 
68,790

 
72,430

Repayments of borrowings on ABL Revolving Debt
 
(112,510
)
 
(34,830
)
Proceeds from issuance of Series A Preferred Stock
 
5,340

 

Proceeds from issuance of Warrants
 
5,380

 

Other, net
 
(10
)
 
(300
)
Net cash (used for) provided by financing activities for continuing operations
 
(163,660
)
 
74,400

Discontinued Operations:
 
 
 
 
Net cash provided by discontinued operating activities
 
11,430

 
8,500

Net cash used for discontinued investing activities
 
(1,120
)
 
(720
)
Net cash provided by (used for) discontinued financing activities
 

 

Net cash provided by discontinued operations
 
10,310

 
7,780

Effect of exchange rate changes on cash
 
280

 
40

Cash and Cash Equivalents:
 
 
 
 
Decrease for the period
 
(11,290
)
 
(2,260
)
At beginning of period
 
27,650

 
29,570

At end of period
 
$
16,360


$
27,310

Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid for interest
 
$
19,730

 
$
13,430

Cash paid for taxes
 
$
480

 
$
2,170


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

6


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

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

 
$

 
$
160,990

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

 
$
(63,720
)
 
$
(2,500
)
 
$
(66,220
)
Net loss
 

 

 

 

 
(25,100
)
 

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

 

 

 

 

 
140

 
140

 

 
140

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

 

 
(10
)
 

 

 

 
(10
)
 

 
(10
)
Non-cash compensation expense
 

 

 
350

 

 

 

 
350

 

 
350

Issuance of Warrants
 

 
5,380

 

 

 

 

 
5,380

 

 
5,380

Balance at March 31, 2019
 
250


5,380


161,330


(10,000
)

(247,820
)

7,900


(82,960
)

(3,020
)

(85,980
)
Net Loss
 

 

 

 

 
(8,080
)
 

 
(8,080
)
 
(60
)
 
(8,140
)
Other comprehensive income, net of tax
 

 

 

 

 

 
(130
)
 
(130
)
 

 
(130
)
Non-cash compensation expense
 

 

 
590

 

 

 

 
590

 

 
590

Issuance of Warrants
 

 
5,340

 

 

 

 

 
5,340

 

 
5,340

Balance as of June 30, 2019
 
250

 
10,720

 
161,920

 
(10,000
)
 
(255,900
)
 
7,770

 
(85,240
)
 
(3,080
)
 
(88,320
)
Net income
 

 

 

 

 
145,510

 

 
145,510

 
(260
)
 
145,250

Other comprehensive loss, net of tax
 

 

 

 

 

 
(1,760
)
 
(1,760
)
 

 
(1,760
)
Non-cash compensation expense
 

 

 
840

 

 

 

 
840

 

 
840

Amounts reclassified from AOCI
 

 

 

 

 

 
(17,260
)
 
(17,260
)
 

 
(17,260
)
Balance at September 30, 2019
 
$
250


$
10,720


$
162,760


$
(10,000
)

$
(110,390
)

$
(11,250
)

$
42,090


$
(3,340
)

$
38,750

 
 
Common
Stock
 
Common Stock Warrants
 
Paid-in
Capital
 
Treasury Stock
 
Accumulated Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total Horizon Global Shareholders’ Equity
 
Noncontrolling Interest
 
Total Shareholders’ Equity
Balance at December 31, 2017, as reported
 
$
250

 
$

 
$
159,490

 
$
(10,000
)
 
$
(17,860
)
 
$
10,010

 
$
141,890

 
$
(1,490
)
 
$
140,400

Impact of ASU 2018-02
 

 

 
340

 

 
(900
)
 
560

 

 

 

Balance at January 1, 2018, as restated
 
250




159,830


(10,000
)

(18,760
)

10,570


141,890


(1,490
)

140,400

Net loss
 

 

 

 

 
(57,510
)
 

 
(57,510
)
 
(250
)
 
(57,760
)
Other comprehensive income, net of tax
 

 

 

 

 

 
4,680

 
4,680

 
10

 
4,690

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

 

 
(200
)
 

 

 

 
(200
)
 

 
(200
)
Non-cash compensation expense
 

 

 
720

 

 

 

 
720

 

 
720

Balance at March 31, 2018
 
250




160,350


(10,000
)

(76,270
)

15,250

 
89,580

 
(1,730
)
 
87,850

Net loss
 

 

 

 

 
(66,930
)
 

 
(66,930
)
 
(230
)
 
(67,160
)
Other comprehensive income, net of tax
 

 

 

 

 

 
(6,010
)
 
(6,010
)
 
(80
)
 
(6,090
)
Shares surrendered upon vesting of employees share based payment awards to cover tax obligations
 

 

 
(10
)
 

 

 

 
(10
)
 

 
(10
)
Non-cash compensation expense
 

 

 
490

 

 

 

 
490

 

 
490

Balance at June 30, 2018
 
250

 

 
160,830

 
(10,000
)
 
(143,200
)
 
9,240

 
17,120

 
(2,040
)
 
15,080

Net loss
 

 

 

 

 
(32,760
)
 

 
(32,760
)
 
(240
)
 
(33,000
)
Other comprehensive income, net of tax
 

 

 

 

 

 
(40
)
 
(40
)
 

 
(40
)
Shares surrendered upon vesting of employees share based payment awards to cover tax obligations
 

 

 
(90
)
 

 

 

 
(90
)
 

 
(90
)
Non-cash compensation expense
 

 

 
220

 

 

 

 
220

 

 
220

Balance at September 30, 2018
 
$
250

 
$

 
$
160,960

 
$
(10,000
)
 
$
(175,960
)
 
$
9,200

 
$
(15,550
)
 
$
(2,280
)
 
$
(17,830
)

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

7

HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



1. Nature of Operations and Basis of Presentation
Horizon Global Corporation (“Horizon,” “Horizon Global,” “we,” or the “Company”) is a global designer, manufacturer and distributor of a wide variety of high quality, custom-engineered towing, trailering, cargo management and other related accessories. These products are designed to support original equipment manufacturers (“OEMs”) and original equipment servicers (“OESs”) (collectively, “OEs”), aftermarket and retail customers within the agricultural, automotive, construction, horse/livestock, industrial, marine, military, recreational, trailer and utility markets. The Company groups its business into operating segments by the region in which sales and manufacturing efforts are focused. As a result of the Company’s sale of its Horizon Asia-Pacific operating segment (“APAC”), the Company’s operating segments are Horizon Americas and Horizon Europe-Africa. See Note 17, “Segment Information,” for further information on each of the Company’s operating segments. Historical information has been retrospectively adjusted to reflect the classification of APAC as discontinued operations. Discontinued operations are further discussed in Note 3, “Discontinued Operations”.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial information and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. It is management’s opinion that these financial statements contain all adjustments, including adjustments of a normal and recurring nature, necessary for a fair presentation of financial position and results of operations. Results of operations for interim periods are not necessarily indicative of results for the full year.
2. New Accounting Pronouncements
Accounting pronouncements recently adopted
In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, “Compensation - Stock Compensation (Topic 718)” (“ASU 2018-07”). ASU 2018-07 expands the scope of Accounting Standard Codification (“ASC”) 718 to include all share-based payment arrangements related to the acquisition of goods and services from both non-employees and employees. ASU 2018-07 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 with early adoption permitted. The Company adopted ASU 2018-07 on January 1, 2019, and there was no impact on the Company’s condensed consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”). ASU 2017-12 eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires, for qualifying hedges, the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also modifies the accounting for components excluded from the assessment of hedge effectiveness, eases documentation and assessment requirements and modifies certain disclosure requirements. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted and should be applied on a modified retrospective basis. The Company adopted ASU 2017-12 on January 1, 2019, and there was no impact on the Company’s condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which supersedes the lease requirements in “Leases (Topic 840).” The objective of this update is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. Under this guidance, lessees are required to recognize on the balance sheet a lease liability and a right-of-use (“ROU”) asset for all leases, with the exception of short-term leases with terms of twelve months or less. The lease liability represents the lessee’s obligation to make lease payments arising from a lease and will be measured as the present value of the lease payments. The ROU asset represents the lessee’s right to use a specified asset for the lease term, and will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs.
The Company has elected the package of practical expedients, excluding the lease term hindsight, as permitted by the transition guidance. The Company has made an accounting policy election to exempt leases with an initial term of twelve months or less from balance sheet recognition. Instead, short-term leases will be expensed over the lease term.
The Company adopted the standard on January 1, 2019, by applying the modified retrospective method without restatement of comparative periods' financial information, as permitted by the transition guidance. The standard had a material impact on the

8

HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Company’s condensed consolidated balance sheet, but did not have a material impact on its condensed consolidated statements of operations and cash flows. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while the Company’s accounting for finance leases remained substantially unchanged.
See Note 12Leases,” for the impact of the adoption which resulted in the recognition of ROU assets and corresponding lease liabilities.
3. Discontinued Operations
On September 19, 2019, the Company completed the sale of its subsidiaries that comprised APAC to Hayman Pacific BidCo Pty Ltd., an affiliate of Pacific Equity Partners, for $209.6 million in net cash proceeds after payment of transaction costs, in a net debt free sale. The sale resulted in the recognition of a gain of $180.5 million, of which $17.3 million was related to the cumulative translation adjustment that was reclassified to earnings, which is reflected within the income from discontinued operations, net of taxes line of the condensed consolidated statement of operations.
The Company classified APAC assets and liabilities as held-for-sale as of December 31, 2018 in the accompanying condensed consolidated balance sheet and has classified APAC’s operating results and the gain on the sale as discontinued operations in the accompanying condensed consolidated statement of operations for all periods presented in accordance with ASC 205, “Discontinued Operations.” Prior to being classified as held-for-sale, APAC was included as a separate operating segment.
The following tables presents the Company’s results from discontinued operations:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(dollars in thousands)
 
(dollars in thousands)
Net sales
 
$
29,750

 
$
33,810

 
$
92,300

 
$
101,760

Cost of sales
 
(22,250
)
 
(24,720
)
 
(68,530
)
 
(76,250
)
Selling, general and administrative expenses
 
(3,050
)
 
(3,130
)
 
(9,580
)
 
(10,510
)
Interest expense
 
(80
)
 
(60
)
 
(310
)
 
(210
)
Other expense. net
 
(210
)
 
(470
)
 
(400
)
 
(1,800
)
Income before income tax expense
 
4,160

 
5,430

 
13,480

 
12,990

Income tax expense
 
(1,900
)
 
(1,320
)
 
(4,450
)
 
(3,320
)
Gain on sale of discontinued operations
 
$
180,490

 
$

 
$
180,490

 
$

Income from discontinued operations, net of tax
 
$
182,750

 
$
4,110

 
$
189,520

 
$
9,670










The following tables presents the Company’s assets and liabilities held for sale:

9

HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


 
 
December 31, 2018
 
 
(dollars in thousands)
Assets
 
 
Current assets:
 
 
Receivables, net of allowance for doubtful accounts
 
$
13,170

Inventories
 
21,490

Prepaid expenses and other current assets
 
1,420

Total current assets
 
36,080

Non-current assets:
 
 
    Property and equipment, net
 
15,780

    Goodwill
 
8,160

    Other intangibles, net
 
8,650

    Deferred income taxes
 
2,030

    Other assets
 
170

Total non-current assets
 
34,790

Assets held-for-sale
 
$
70,870

Liabilities
 
 
Current liabilities:
 
 
  Accounts payable
 
$
20,780

  Accrued liabilities
 
7,300

Total current liabilities
 
28,080

Non-current liabilities:
 
 
    Deferred income taxes
 
1,530

    Other long-term liabilities
 
210

Total non-current liabilities
 
1,740

Total liabilities held-for-sale
 
$
29,820



10

HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


4. Revenues
Revenue Recognition
The Company disaggregates revenue from contracts with customers by major sales channel. The Company determined that disaggregating revenue into these categories best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The Automotive OEM channel represents sales to automotive vehicle manufacturers. The Automotive OES channel primarily represents sales to automotive vehicle dealerships. The Aftermarket channel represents sales to automotive installers and warehouse distributors. The Retail channel represents sales to direct-to-consumer retailers. The Industrial channel represents sales to non-automotive manufacturers and dealers of agricultural equipment, trailers, and other custom assemblies. The E-Commerce channel represents sales to direct-to-consumer retailers who utilize the internet to purchase the Company’s products. The Other channel represents sales that do not fit into a category described above and these sales are considered ancillary to the Company’s core operating activities.
The following tables present the Company’s net sales by major sales channel:
 
 
Three Months Ended September 30, 2019
 
 
Horizon Americas
 
Horizon Europe-Africa
 
Total
 
 
(dollars in thousands)
Net Sales
 
 
 
 
 
 
Automotive OEM
 
$
21,050

 
$
43,200

 
$
64,250

Automotive OES
 
1,960

 
16,510

 
18,470

Aftermarket
 
26,920

 
19,840

 
46,760

Retail
 
26,600

 

 
26,600

Industrial
 
7,650

 
780

 
8,430

E-commerce
 
12,040

 
560

 
12,600

Other
 

 
740

 
740

Total
 
$
96,220

 
$
81,630

 
$
177,850

 
 
Three Months Ended September 30, 2018
 
 
Horizon Americas
 
Horizon Europe-Africa
 
Total
 
 
(dollars in thousands)
Net Sales
 
 
 
 
 
 
Automotive OEM
 
$
20,320

 
$
40,650

 
$
60,970

Automotive OES
 
1,700

 
12,600

 
14,300

Aftermarket
 
38,470

 
19,980

 
58,450

Retail
 
29,600

 

 
29,600

Industrial
 
11,160

 

 
11,160

E-commerce
 
13,750

 
1,290

 
15,040

Other
 
510

 
4,000

 
4,510

Total
 
$
115,510

 
$
78,520

 
$
194,030



11

HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


 
 
Nine Months Ended September 30, 2019
 
 
Horizon Americas
 
Horizon Europe-Africa
 
Total
 
 
(dollars in thousands)
Net Sales
 
 
 
 
 
 
Automotive OEM
 
$
64,970

 
$
137,900

 
$
202,870

Automotive OES
 
5,380

 
45,840

 
51,220

Aftermarket
 
79,910

 
56,200

 
136,110

Retail
 
88,230

 

 
88,230

Industrial
 
23,860

 
2,340

 
26,200

E-commerce
 
38,300

 
1,650

 
39,950

Other
 
20

 
3,570

 
3,590

Total
 
$
300,670

 
$
247,500

 
$
548,170


 
 
Nine Months Ended September 30, 2018
 
 
Horizon Americas
 
Horizon Europe-Africa
 
Total
 
 
(dollars in thousands)
Net Sales
 
 
 
 
 
 
Automotive OEM
 
$
60,320

 
$
134,930

 
$
195,250

Automotive OES
 
4,230

 
39,980

 
44,210

Aftermarket
 
96,700

 
65,180

 
161,880

Retail
 
96,330

 

 
96,330

Industrial
 
31,680

 

 
31,680

E-commerce
 
29,340

 
3,880

 
33,220

Other
 
1,220

 
12,460

 
13,680

Total
 
$
319,820

 
$
256,430

 
$
576,250

During the three and nine months ended September 30, 2019 and 2018, adjustments to estimates of variable consideration for previously recognized revenue were insignificant. At September 30, 2019 and December 31, 2018, total opening and closing balances of contract assets and deferred revenue were not material.
5. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the nine months ended September 30, 2019 are summarized as follows:
(dollars in thousands)
 
Horizon Americas
 
 
 
Balance at December 31, 2018
 
$
4,500

Foreign currency translation
 
(300
)
Balance at September 30, 2019
 
$
4,200


12

HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The gross carrying amounts and accumulated amortization of the Company’s other intangibles are summarized as follows.
 
 
As of
September 30, 2019
Intangible Category by Useful Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
 
(dollars in thousands)
Finite-lived intangible assets:
 
 
 
 
 
 
Customer relationships (2 – 20 years)
 
$
162,940

 
$
(129,020
)
 
$
33,920

Technology and other (3 – 15 years)
 
20,590

 
(14,630
)
 
5,960

Trademark/Trade names (1 – 8 years)
 
150

 
(150
)
 

Total finite-lived intangible assets
 
183,680

 
(143,800
)
 
39,880

Trademark/Trade names, indefinite-lived
 
20,470

 

 
20,470

Total other intangible assets
 
$
204,150

 
$
(143,800
)
 
$
60,350

 
 
As of
December 31, 2018
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)
 
$
168,230

 
$
(124,510
)
 
$
43,720

Technology and other (3 – 15 years)
 
20,490

 
(15,400
)
 
5,090

Trademark/Trade names (1 – 8 years)
 
150

 
(150
)
 

Total finite-lived intangible assets
 
188,870

 
(140,060
)
 
48,810

Trademark/Trade names, indefinite-lived
 
20,590

 

 
20,590

Total other intangible assets
 
$
209,460

 
$
(140,060
)
 
$
69,400

On March 1, 2019, the Company entered into an agreement of sale of certain business assets in its Europe-Africa operating segment, via a share and asset sale (the “Sale”). Under the terms of the Sale, effective March 1, 2019, the Company disposed of certain non-automotive business assets that operated using the Terwa brand for $5.5 million, which included a $0.5 million note receivable. The Sale resulted in a $3.6 million loss recorded in Other expense, net in the condensed consolidated statements of operations, including a $3.0 million reduction of net intangibles related to customer relationships.
Amortization expense related to intangible assets as included in the accompanying condensed consolidated statements of operations is summarized as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(dollars in thousands)
Technology and other, included in cost of sales
 
$
260

 
$
430

 
$
980

 
$
990

Customer relationships and Trademark/Trade names, included in selling, general and administrative expenses
 
1,410

 
1,600

 
3,820

 
4,650

Total amortization expense
 
$
1,670

 
$
2,030

 
$
4,800

 
$
5,640


13

HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


6. Inventories
Inventories consist of the following components:
 
 
September 30,
2019
 
December 31,
2018
 
 
(dollars in thousands)
Finished goods
 
$
80,440

 
$
89,000

Work in process
 
12,880

 
16,160

Raw materials
 
47,830

 
47,040

Total inventories
 
$
141,150

 
$
152,200



14

HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


7. Property and Equipment, Net
Property and equipment, net consists of the following components:
 
 
September 30,
2019
 
December 31,
2018
 
 
(dollars in thousands)
Land and land improvements
 
$
440

 
$
460

Buildings
 
20,460

 
18,680

Machinery and equipment
 
120,840

 
121,230

 
 
141,740

 
140,370

Accumulated depreciation
 
(63,070
)
 
(53,870
)
Property and equipment, net
 
$
78,670

 
$
86,500

Depreciation expense included in the accompanying condensed consolidated statements of operations is as follows:
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
(dollars in thousands)
 
 
2019
 
2018
 
2019
 
2018
 
 
(dollars in thousands)
Depreciation expense, included in cost of sales
 
$
3,170

 
$
2,960

 
$
9,760

 
$
8,630

Depreciation expense, included in selling, general and administrative expense
 
1,420

 
270

 
2,220

 
780

Total depreciation expense
 
$
4,590

 
$
3,230

 
$
11,980

 
$
9,410


8. Accrued and Other Long-term Liabilities

Accrued liabilities consist of the following components:
 
 
September 30,
2019
 
December 31,
2018
 
 
(dollars in thousands)
Customer incentives
 
$
12,700

 
$
9,990

Customer claims
 
10,370

 
14,130

Accrued compensation
 
8,890

 
5,680

Accrued professional services
 
3,940

 
4,380

Restructuring
 
2,450

 
7,530

Deferred purchase price
 
750

 
3,400

Short-term tax liabilities
 
750

 
1,130

Cross currency swap
 

 
1,610

Other
 
13,170

 
10,670

Total accrued liabilities
 
$
53,020

 
$
58,520



15

HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Other long-term liabilities consist of the following components:
 
 
September 30,
2019
 
December 31,
2018
 
 
(dollars in thousands)
Long-term tax liabilities
 
$
6,220

 
$
6,270

Deferred purchase price
 
2,440

 
30

Restructuring
 
1,980

 
2,580

Other
 
10,130

 
10,870

Total other long-term liabilities
 
$
20,770

 
$
19,750


9. Long-term Debt
The Company’s long-term debt consists of the following:
 
 
September 30,
2019
 
December 31,
2018
 
 
(dollars in thousands)
ABL Facility
 
$
19,660

 
$
61,570

First Lien Term Loan
 
25,010

 
190,520

Second Lien Term Loan
 
55,060

 

Convertible Notes
 
125,000

 
125,000

Bank facilities, capital leases and other long-term debt
 
14,470

 
18,990

Gross debt
 
239,200

 
396,080

Less:
 
 
 
 
Current maturities, long-term debt
 
24,270

 
13,860

Gross long-term debt
 
214,930

 
382,220

Less:
 
 
 
 
Unamortized debt issuance costs and original issuance discount on First Lien Term Loan
 
790

 
7,380

Unamortized debt issuance costs and discount on Second Lien Term Loan
 
13,800

 

Unamortized debt issuance costs and discount on Convertible Notes
 
19,610

 
24,190

Unamortized debt issuance costs and discount
 
34,200

 
31,570

Long-term debt
 
$
180,730

 
$
350,650

ABL Facility
In February 2019, the Company amended its existing revolving credit facility (the “ABL Facility”) to permit the Company to enter into the Senior Term Loan Agreement (as defined below) and make certain indebtedness, asset sale, investment and restricted payment baskets covenants more restrictive.
In March 2019, the Company amended the ABL Facility to permit the Company to enter into the Second Lien Term Loan Agreement (as defined below) and provide for certain other modifications of the ABL Facility. In particular, the ABL Facility was modified to increase the interest rate by 1.0%, reduce the total facility size to $90.0 million and limit the ability to incur additional indebtedness in the future.
In September 2019, the Company amended its existing ABL Facility to provide consent for the sale of APAC, provide consent for the Company’s prepayment of First Lien Term Loan, as discussed below, and increase the existing block by $5.0 million to a total block of $10.0 million, making the effective facility size $80.0 million.

16

HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The ABL Facility consists of (i) a U.S. sub-facility, in an aggregate principal amount of up to $85.0 million (subject to availability under a U.S.-specific borrowing base) (the “U.S. Facility”), (ii) a Canadian sub-facility, in an aggregate principal amount of up to $2.0 million (subject to availability under a Canadian-specific borrowing base) (the “Canadian Facility”), and (iii) a U.K. sub-facility in an aggregate principal amount of up to $3.0 million (subject to availability under a U.K.-specific borrowing base) (the “U.K. Facility”). All facilities under the ABL Facility mature on June 30, 2020 and are presented in “short-term borrowings and current maturities, long-term debt” in the accompanying September 30, 2019 condensed consolidated balance sheet.
The Company incurred debt issuance costs of approximately $0.5 million in connection with the September 2019 amendment of the ABL Facility. These debt issuance costs will be amortized into interest expense over the contractual term of the loan. The Company recognized $0.3 million and $0.8 million of amortization of debt issuance costs for the three and nine months ended September 30, 2019, respectively, and $0.1 million and $0.4 million for the three and nine months ended September 30, 2018, respectively which are included in the accompanying condensed consolidated statements of operations. There were $2.0 million and $0.8 million of unamortized debt issuance costs included in other assets in the accompanying condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively. There was $19.7 million and $61.6 million outstanding under the ABL Facility as of September 30, 2019 and December 31, 2018, respectively, with a weighted average interest rate of 7.0% and 4.4%, respectively. Total letters of credit issued under the ABL Facility at September 30, 2019 and December 31, 2018 were $7.8 million and $3.4 million, respectively. The Company had $44.5 million and $10.3 million of availability under the ABL Facility as of September 30, 2019 and December 31, 2018, respectively.
First Lien Term Loan (formerly “Term Loan”)
In February 2019, the Company amended and restated the existing term loan agreement (the “First Lien Term Loan Agreement”) to permit the Company to enter into the Senior Term Loan Agreement and tightened certain indebtedness, asset sale, investment and restricted payment baskets.
In March 2019, the Company amended the existing term loan agreement (“Sixth Term Amendment”) to permit the Company to enter into the Second Lien Term Loan Agreement, amend certain financial covenants to make them less restrictive and make certain other affirmative and negative covenants more restrictive.
The Sixth Term Amendment also added a fixed charge coverage covenant starting with fiscal quarter ending March 31, 2020, a minimum liquidity covenant of $15.0 million starting March 31, 2019, and a maximum capital expenditure covenant of $15.0 million for 2019 and $25.0 million annually thereafter. The interest rate on the First Lien Term Loan Agreement was also amended to add 3.0% paid-in-kind interest in addition to the existing cash pay interest.
In May 2019, the Company entered into the seventh amendment to credit agreement (the “Seventh Term Amendment”) to amend the First Lien Term Loan Agreement, which extended its $100.0 million prepayment requirement from on or before March 31, 2020, to on or before May 15, 2020.
In September 2019, the Company amended the existing First Lien Term Loan Agreement (“Eighth Term Amendment”) to provide consent for the sale of the Company’s APAC segment, provide consent for the Company to meet its prepayment obligation of the First Lien Term Loan, remove prepayment penalties and make certain negative covenants less restrictive. In September 2019, the Company paid down a portion of its First Lien Term Loan’s outstanding principal plus fees and paid-in-kind interest in the amount of $172.9 million.
Pursuant to the Eighth Term Amendment, the prior first lien leverage covenant was eliminated and replaced with the secured net leverage ratio starting with the fiscal quarter ending December 31, 2020 as follows:
December 31, 2020: 6.00 to 1.00
March 31, 2021: 6.00 to 1.00
June 30, 2021 and each fiscal quarter ending thereafter: 5.00 to 1.00
In accordance with ASC 470-50, “Modifications and Extinguishments,” the Company recorded approximately $0.7 million of issuance costs in selling, general and administrative expense in the accompanying condensed consolidated statements of operations during the nine months ended September 30, 2019 and wrote off approximately $5.2 million of debt issuance costs due to the modification of the First Lien Term Loan for the September 19, 2019 amendment, which were recorded to selling, general and administrative expense within the accompanying condensed consolidated statements of operations.

17

HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The Company recorded approximately $5.2 million and $8.7 million of unamortized debt issuance costs to interest expense for the three and nine months ended September 30, 2019, respectively, due to the extinguishment of debt for certain lenders in the loan syndicate in connection with the Sixth, Seventh and Eighth Term Amendments.
The Company recognized approximately $1.7 million and $4.4 million of amortization of debt issuance and discount cost for the three and nine months ended September 30, 2019, respectively, and $0.6 million and $1.4 million for the three and nine months ended September 30, 2018, respectively, which is included in the accompanying condensed consolidated statements of operations.
The Company recognized $3.0 million of paid-in-kind interest on the First Lien Term Loan for the nine months ended September 30, 2019. The Company had an aggregate principal amount outstanding of $25.0 million and $190.5 million as of September 30, 2019 and December 31, 2018, respectively, under the First Lien Term Loan bearing interest at 8.1% and 8.8%, respectively.