UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
__________________________________________________________________________________________________
FORM 10-K
(Mark One)
 
 
x
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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.)
47912 Halyard Drive, Suite 100
Plymouth, Michigan 48170
(Address of Principal Executive Offices, Including Zip Code)
(734) 656-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered:
Common stock, $0.01 par value
 
HZN
 
New York Stock Exchange
         Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No x
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 (§ 232.405 of this chapter) 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 definition of “accelerated filer,” “large 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 x
 
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 Act). Yes o    No x
The aggregate market value of the common stock held by non-affiliates of the Registrant as of June 28, 2019 was approximately $66.2 million, based upon the closing sales price of the Registrant’s common stock, $0.01 par value, reported for such date on the New York Stock Exchange.
As of March 12, 2020, the number of outstanding shares of the Registrant’s common stock, $0.01 par value, was 25,394,253 shares.
Portions of the Registrant’s Proxy Statement for the 2019 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein.
 
 
 
 
 



Horizon Global Corporation
Index
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Principal Accountant Fees and Services
 
 
 
 
 
 
 
 
 
 
 
 
Exhibits, Financial Statement Schedules
 
 
 
 
 
 
 
 
 
 
 


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Forward-Looking Statements
This Annual Report on Form 10-K 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; factors affecting the Company’s business that are outside of its control, including natural disasters, pandemics (such as the coronavirus (COVID-19)), accidents and governmental actions; and other risks that are discussed in Part I, Item 1A, “Risk Factors.” The risks described in this Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deemed to be immaterial also may materially adversely affect our business, financial position and results of operations or cash flows.
The cautionary statements set forth above should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We caution readers not to place undue reliance on forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect the Company. We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statement to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect the occurrence of unanticipated events, except as otherwise required by law.
We disclose important factors that could cause our actual results to differ materially from our expectations implied by our forward-looking statements under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Annual Report on Form 10-K. These cautionary statements qualify all forward-looking statements attributed to us or persons acting on our behalf. When we indicate that an event, condition or circumstance could or would have an adverse effect on us, we mean to include effects upon our business, financial and other conditions, results of operations, prospects and ability to service our debt.

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PART I

Item 1.    Business
Overview
Horizon Global Corporation, which we refer to herein as “Horizon,” “Horizon Global,” “we” 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 on a global basis, serving the automotive original equipment manufacturers (“OEMs”) and servicers (“OESs”) (collectively “OEs”), industrial, aftermarket, retail and e-commerce channels.
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”) on September 19, 2019, the Company has two remaining operating segments, Horizon Americas and Horizon Europe-Africa. For additional information regarding the sale of the APAC segment, refer to Note 4, Discontinued Operations, included in Item 8, “Financial Statements and Supplementary Data,” within this Annual Report on Form 10-K. Horizon Americas has operations in North and South America, primarily operating in the United States, Mexico, Canada and Brazil, and is generally a leader in towing and trailering-related products sold through the automotive OE, industrial, aftermarket, retail and e-commerce channels, especially in North America. Horizon Europe‑Africa focuses their sales and manufacturing efforts outside of North and South America. Horizon Europe‑Africa operates primarily in Germany, France, the United Kingdom, Romania and South Africa. We believe Horizon Europe‑Africa has been a leader in towing related products sold primarily through automotive OE and aftermarket channels in its segment.
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, mining 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:
Automotive OEM and Automotive OES (collectively, “Automotive OE”): 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 automotive OEM and automotive OES sales channels. 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 controls, wiring harnesses, draw bars, ball mounts, crossbars, security and other towing accessories.
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 controls, jacks, winches, couplers, interior and exterior vehicle lighting and brake replacement parts.
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, to secure that cargo or to organize items. Examples of these products are bike racks, roof cross bar systems, cargo carriers, luggage boxes, car interior protective products, rope, tie-downs, tarps, tarp straps, bungee cords, 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.

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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.
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 Reese®, Draw-Tite® 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 Aqua Clear™, Bulldog®, BTM, DHF, Engetran, Fulton®, Kovil, Reese Secure™, Reese Explorer™, Reese Power Sports, Reese Towpower™, ROLA®, Tekonsha®, Trojan®, WesBarg® 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 macro-economic 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 indices, given the Play-related sales tend to be more directly related to disposable income levels. In general, unemployment in the United States and European Union has decreased in recent periods and consumer sentiment and fuel prices have been stable in these markets. We believe these are positive trends for our businesses.
Automotive OE and Industrial Channels
While automotive 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 the 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 Automotive OE and industrial business opportunities.
More recent trends in the global automotive OE and industrial supplier market include:
Global Platform/Supplier Consolidation: Automotive OEs are adopting global vehicle platforms to decrease product development costs and increase manufacturing efficiency and profitability. As a result, Automotive OEs are selecting suppliers that have the capacity to manufacture and deliver products on a worldwide 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 global 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: Automotive 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 automotive 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 automotive 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 global engineering footprint enables us to rapidly deploy solutions meeting the changing customer needs.

5


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: Reaching 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, given our established online presence. 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.
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 that we are the leading supplier of towing products and among the leading suppliers of trailering products globally.
Global Scale with Flexible Manufacturing Footprint and Supply Chain. We were built through internal growth and a series of acquisitions to become the only truly global automotive accessories company with the products we offer. We have the ability to produce low-volume, customized, quick-turn products in our global manufacturing facilities, while our sourcing arrangements with third-party suppliers provides us with the flexibility to manufacture or source high-volume products as end-market demand fluctuates. 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 to reaching the end consumer. Blue chip customers include Ford Motor Company, FCA, Volkswagen, BMW, Mercedes-Benz, AutoZone, Amazon, Toyota, Canadian Tire, LKQ, U-Haul, Home Depot and Etrailer, 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.  Since becoming an independent public company, we have focused on margin improvement activities, identifying and acting on projects to reduce our cost structure. With focused, identifiable projects under way or complete, we believe we should benefit from improved operating margins and cash flow that can then be deployed to high-value creation activities. The combination of our strong brand names, leading market position, flexible manufacturing and sourcing operations have historically resulted in significant cash flow generation.

6


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.
Capital Structure. Our first priority is to continue to improve our capital structure with a continued reduction in leverage over time. We aim to accomplish this goal through cash flow generation and improved liquidity management following the sale of our APAC business and our other key business priorities.
Margin Expansion. Our second 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 our operations, should provide the foundation for additional margin expansion. We are developing an organization in which all team members are focused on constantly improving the efficiency of all operations through the adoption of lean and continuous improvement practices.
Operational Stabilization. Our third priority is to stabilize existing operations after significant management changes and changes in our distribution footprint in the Americas and manufacturing footprint in Europe-Africa during 2019. We aim to have our distribution centers and manufacturing facilities operating efficiently and effectively to meet peak demand during our traditional summer selling season in 2020.
Organic Growth.     Our fourth priority is to grow the business 3% to 5% on an organic basis, annually. We have identified areas of focused growth activities, involving geographic markets and sales channels, which we believe are particularly aligned with our competitive strengths.
Growth Strategies
We believe that 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 Original Equipment and Aftermarket Growth. The global market for accessories and vehicle personalization is increasing across channels. 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 automotive OE has increased the need for global suppliers. Our geographic footprint, existing customer relationships and the increase in global vehicle platforms align to present us with unique opportunities to grow with our automotive OE customers. The Company is positioned to balance and leverage the OE growth with growth in the aftermarket as we have significant brand recognition and strategic distributor and customer relationships.
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 Romania provides opportunities for growth, while supporting both new and existing global customers in a cost-effective manner. 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 global footprint.

7


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. Significant Horizon customers include Ford Motor Company, FCA, Volkswagen, BMW and Toyota in the OE channel; Tractor Supply Company and O’Reilly Auto Parts in the retail channel; Amazon and Etrailer in the E-commerce channel; and LKQ, U-Haul and Redneck Trailer Supplies in the aftermarket channel. No customer represented greater than 10% of total revenue during the twelve months ended December 31, 2019 and 2018.
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 on a global basis in the markets we serve. Significant towing competitors include Curt Manufacturing, B&W Trailer Hitches, Husky Towing Products, Winston Products, The Bosal Group, Brink 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.
Employees and Labor Relations
As of December 31, 2019, we employed approximately 3,600 people, of which approximately 12% were located in the United States. In the United States, we have no collective bargaining agreements. Employee relations have generally been satisfactory.
Seasonality and Backlog
We experience some seasonality in our business. Sales of towing and trailering products in the northern hemisphere, where we generate the majority of our sales, 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. The Company’s businesses in the southern hemisphere are stronger in the first and fourth calendar quarters. 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. We normally do not consider order backlog to be a material factor in our businesses.
Environmental Matters
We are subject to U.S. federal, state and local, and non-U.S. international environmental and 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.


8


International Operations
For the twelve months ended December 31, 2019 (“4Q19 YTD”), 47.5% of our net sales were derived outside of the United States. In addition, 66.2% of our consolidated property and equipment, net as of December 31, 2019 were located outside of the United States. We operate manufacturing facilities in Brazil, France, Germany, Romania, Mexico, 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
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. Some of our risks relate principally to our business and the industry in which we operate, while others relate to the securities markets in general and ownership of our common stock. If any of the following risks actually occur, our business, financial condition or results of operations could be negatively affected.
Risks Relating to our Business and our Industry
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.
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.
At December 31, 2019, we had total debt of $240.9 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, first lien term loan and second lien 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, first lien term loan and second lien 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;

10


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, first lien term loan and second lien term loan require us to maintain specified financial ratios and satisfy other financial condition tests. Although we entered into amendments to these agreements in March 2019 and September 2019 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, first lien term loan and second lien 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, first lien term loan and second lien 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.
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 continued investment by us 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 as a consequence of this competition to increase our investment overseas. 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 be unable to successfully implement our business strategies. Our ability to realize our business strategies may be limited.
Our businesses operate in relatively mature industries and it may be difficult to successfully pursue our growth strategies and realize material benefits therefrom. Even if we are successful, other risks attendant to our businesses and the economy generally may substantially or entirely eliminate the benefits.

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We may not achieve our strategic goals for margin expansion, capital structure improvement 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, capital structure improvement 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, capital structure improvement 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: 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 coronavirus (COVID-19)), fires 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.
The U.S. 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. It 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.
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.
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 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.
A future impairment of our intangible assets or goodwill could have a material negative impact on our financial results.

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At December 31, 2019, our intangible assets and goodwill were $60.1 million and $4.4 million, respectively. Intangibles and goodwill each represented 14% and 1% of our total assets, respectively. 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.
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.
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 potential product liability and recall claims. 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

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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.
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 2019 under these operating leases was $18.8 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.
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, 2019, 27% 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.
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 4Q19 YTD, 47.5% 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;       

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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 export control and economic sanctions, such as anti-dumping duties;       
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 related to the United Kingdom’s successful referendum to exit 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, particularly in light of the current U.S. presidential administration. 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.
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 regulations, 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 regulations. 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.
Our reputation, ability to do business and results of operations may be impaired by improper conduct by any of our employees, agents, or business partners.

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While we strive to maintain high standards, we cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by our employees, agents, or business partners that would violate U.S. and/or non-U.S. laws or fail to protect our confidential information, including the laws governing payments to government officials, bribery, fraud, anti-kickback and false claims rules, competition, export and import compliance, money laundering, and data privacy laws, as well as the improper use of proprietary information or social media. Any such allegations, violations of law or improper actions could subject us to civil or criminal investigations in the United States and in other jurisdictions, could lead to substantial civil or criminal, monetary and non-monetary penalties, and related shareholder lawsuits, could lead to increased costs of compliance, could damage our reputation and could have a material effect on our financial statements.
Our acquisition agreements by which we have acquired companies include indemnification provisions that may not fully protect us and may result in unexpected liabilities. Moreover, we remain subject to continuing indemnification liabilities in connection with the Spin-off.
Certain of the agreements related to the acquisition of businesses require indemnification against certain liabilities related to the operations of the company for the previous owner. We cannot be assured that any of these indemnification provisions will fully protect us, and as a result we may incur unexpected liabilities that adversely affect our profitability and financial position.
Additionally, 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.
Potential liabilities associated with certain assumed obligations under the tax sharing agreement cannot be precisely quantified at this time.
Under the tax sharing agreement with TriMas, we are responsible generally for certain taxes paid after the Spin-off attributable to us or any of our subsidiaries, whether accruing before, on or after the Spin-off. We have also agreed to be responsible for, and to indemnify TriMas with respect to, all taxes arising as a result of the Spin-off (or certain internal restructuring transactions) failing to qualify as transactions under Sections 368(a) and 355 of the Code for U.S. federal income tax purposes (which could result, for example, from a merger or other transaction involving an acquisition of our shares) to the extent such tax liability arises as a result of any breach of any representation, warranty, covenant or other obligation by us or certain affiliates made in connection with the issuance of the tax opinion relating to the Spin-off or in the tax sharing agreement. As described above, such tax liability would be calculated as though TriMas (or its affiliate) had sold its shares of common stock of our company in a taxable sale for their fair market value, and TriMas (or its affiliate) would recognize taxable gain in an amount equal to the excess of the fair market value of such shares over its tax basis in such shares. Any such tax liability could have a material adverse effect on us.
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

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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.
We may not realize the growth opportunities and cost synergies that are anticipated from acquisitions.
The benefits from past or future acquisitions will depend, in part, on our ability to realize the anticipated growth opportunities and cost synergies. There is a significant degree of difficulty and management distraction inherent in the process of integrating acquisitions. There can be no assurance that we will successfully or cost-effectively integrate past or future acquisitions. The failure to do so could have a material adverse effect on our business, financial condition, and results of operations.
The accounting method for convertible debt securities that may be settled in cash, such as our convertible senior notes, could have a material effect on our reported financial results.
Under Accounting Standards Codification (“ASC”) 470-20, “Debt with Conversion and Other Options”, which we refer to as ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments (such as our convertible senior notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for our convertible senior notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component of our convertible senior notes. As a result, we will be required to record a greater amount of non-cash interest expense in current periods presented as a result of the amortization of the discounted carrying value of our convertible senior notes to their face amount over the term of the convertible senior notes. We will report lower net income in our financial statements because ASC 470-20 will require interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the convertible senior notes.
In addition, under certain circumstances, convertible debt instruments (such as our convertible senior notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of our convertible senior notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of our convertible senior notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of our convertible senior notes, then our diluted earnings per share would be adversely affected.
The conditional conversion features of our 2.75% Convertible Senior Notes due 2022 (“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,

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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 and warrant transactions in connection with the second lien term loan 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.
Pursuant to the second lien term loan, 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. 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. 
We are subject to counterparty risk with respect to the Convertible Note Hedges.
Each option counterparty to the Convertible Note Hedges is a financial institution, and we will be subject to the risk that it might default under the Convertible Note Hedges.  Our exposure to the credit risk of an option counterparty will not be secured by any collateral.  Global economic conditions have from time to time resulted in the actual or perceived failure or financial difficulties of many financial institutions.  If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under our transactions with the option counterparty.  Our exposure will depend on many factors but, generally, the increase in our exposure will be correlated to the increase in the market price and in the volatility of our common stock.  In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock.  We can provide no assurances as to the financial stability or viability of any option counterparty.
Risks Relating to Ownership of Our Common Stock
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 January 3, 2019, we were notified (the “Notice”) 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 that we intended to seek to cure the market capitalization condition by executing our 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.

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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 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.
Our issuance of the Convertible Notes, or the issuance of any additional shares of our common stock or instruments convertible into 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 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.
Pursuant to the second lien term loan, 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. 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 is 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 the second lien term loan, 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. In addition, the market price of our common stock could also be affected by possible sales of our common stock by investors who view our convertible senior notes as a more attractive means of equity participation in us and by hedging or arbitrage trading activity that we expect to develop involving our Convertible Notes and 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.

19


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.
We may issue preferred stock with terms that could dilute the voting power or reduce the value of our common stock.
Our amended and restated 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.
We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”). For as long as we continue to be an emerging growth company we may choose to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, which includes, among other things:
exemption from the auditor attestation requirements under Section 404 of the Sarbanes-Oxley Act of 2002;
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements;
exemption from the requirements of holding non-binding stockholder votes on executive compensation arrangements; and
exemption from any rules requiring mandatory audit firm rotation and auditor discussion and analysis and, unless the SEC otherwise determines, any future audit rules that may be adopted by the Public Company Accounting Oversight Board.
We could be an emerging growth company until the last day of the fiscal year following the fifth anniversary of the consummation of the Spin-off, which is December 31, 2020, or until the earliest of (i) the last day of the fiscal year in which we have annual gross revenue of $1.07 billion (subject to adjustment for inflation) or more, (ii) the date on which we have, during the previous three year period, issued more than $1 billion in non-convertible debt or (iii) the date on which we are deemed to be a large accelerated filer under the federal securities laws. We will qualify as a large accelerated filer as of the first day of the first fiscal year after we have (i) more than $700 million in outstanding common equity held by our non-affiliates and (ii) been public for at least 12 months. The value of our outstanding common equity will be measured each year on the last day of our second fiscal quarter.
Under the JOBS Act, emerging growth companies are also permitted to elect to delay adoption of new or revised accounting standards until companies that are not subject to periodic reporting obligations are required to comply, if such accounting standards apply to non-reporting companies. We have made an irrevocable decision to opt out of this extended transition period for complying with new or revised accounting standards.
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

20


(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.

Item 1B.    Unresolved Staff Comments
Not applicable.
Item 2.    Properties
As of December 31, 2019, 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.
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 14, Contingencies, included in Item 8, “Financial Statements and Supplementary Data”, within this Annual Report on Form 10-K.
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, 58, was appointed as our Chief Executive Officer on September 23, 2019. Mr. Gohl is also a member of Horizon Global’s Board. Prior to joining Horizon Global, Mr. Gohl served as Chief Operating Officer at International Automotive Components (“IAC”), a leading global supplier of automotive components and systems, from February 2017 to June 2018. While at IAC, Mr. Gohl was responsible for 50 manufacturing locations and 23 technical centers globally. Prior to his role at IAC, from March 2009 to January 2017, Mr. Gohl served as President and CEO of Key Plastics, LLC, a supplier of injection molded plastic components to automotive OEMs, where Mr. Gohl’s strategic leadership and operational expertise were pivotal to its restructuring and turnaround, resulting in substantial improvement in financial performance and a successful sale of the business. Mr. Gohl has previously held executive positions with multiple Tier 1 automotive suppliers, including Visteon Corporation, Tower Automotive and Lear Corporation.

Matthew J. Meyer. Mr. Meyer, 38, was appointed as Chief Accounting Officer on December 13, 2019, and will serve as the Company’s principal financial officer through the filing of this Annual Report on Form 10-K. Prior to Mr. Meyer’s appointment as Chief Accounting Officer, he served as Horizon Global’s Corporate Controller. In his new role, Mr. Meyer will be responsible for the Company’s global financial reporting, accounting and tax functions. Mr. Meyer had served as the Company’s Corporate Controller since November 2018. Prior to joining the Company, Mr. Meyer served as Corporate Controller 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. From January 2015 to December 2015, Mr. 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. Mr. 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.


21


Matthew T. Pollick. Mr. Pollick, 48, was appointed as Chief Operating Officer on November 12, 2019. Prior to joining Horizon Global, Mr. Pollick served as Executive Vice President of Industrial Management for Gestamp North America (“Gestamp”), a company dedicated to the design, development and manufacture of metal automotive componentsfrom September 2016 to November 2019. During his tenure at Gestamp, Mr. Pollick opened five new plants and supported the launch of over $1 billion in annual new business for Gestamp. From April 2014 to September 2016, as General Manager of Bowling Green Metalforming, a subsidiary of Magna International, a leading global automotive mobility technology and automotive parts supplier (“Magna”), Mr. Pollick implemented cost savings through material utilization improvements and reduced working capital through inventory reductions by optimizing operational processes. 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.

Dennis E. Richardville. Mr. Richardville, 65, was appointed as our Chief Financial Officer on March 16, 2020, and will assume the role of the Company’s principal financial officer after the filing of this Annual Report on Form 10-K. Prior to his appointment, Mr. Richardville served as Vice President and Corporate Treasurer of the Company since January 2020. Prior to joining Horizon Global, 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 September 2019. Mr. Richardville served as Executive Vice President and Chief Financial Officer of IAC from April 2012 to December 2019. 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 1999 to 2007.

James F. Sistek. Mr. Sistek, 56, was appointed as a Chief Administrative Officer on December 9, 2019. Prior to joining Horizon Global, 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, ultimately serving as Vice President Shared Services and Chief Information Officer from 2009 to 2013.

Jay Goldbaum Mr. Goldbaum, 38, was named our General Counsel effective November 13, 2017, and has served as Chief Compliance Officer and Corporate Secretary since June 30, 2015. Mr. Goldbaum previously served as Legal Director since June 30, 2015 in connection with the Spin-off. From January 14, 2015 through June 29, 2015, Mr. Goldbaum served as Vice President, Corporate Secretary and a Director of Horizon Global. 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.


22


PART II

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 12, 2020, there were 211 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
The Company’s purchases of its shares of common stock during the three months ended December 31, 2019 were as follows:
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (a)
October 1 - 31, 2019
 

 
$

 

 
813,494

November 1 - 30, 2019
 

 
$

 

 
813,494

December 1 - 31, 2019
 

 
$

 

 
813,494

Total
 

 
$

 

 
813,494

__________________________
(a) The Company has a share repurchase program that was announced in May 2017 to purchase up to 1.5 million shares of the Company’s common stock. As of December 31, 2019, 813,494 shares of common stock remain to be purchased under this program. The share repurchase program expires on May 5, 2020.


23


Item 6.    Selected Financial Data
Not applicable.
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, 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 on a global basis, primarily serving the aftermarket, retail and E-commerce and automotive OEM and OES channels, supporting our customers primarily through a regional service and delivery model.
Horizon Global reports its business in two operating segments: Horizon Americas and Horizon Europe-Africa. See Note 18, 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.
Critical factors affecting our ability to succeed include:
Our ability to realize the expected future economic benefits resulting from the changes made to our manufacturing operations, distribution footprint and management team during 2017 through 2019, including the operational improvement initiatives implemented in 2019;
Our ability to continue to manage our liquidity, including continuing to deleverage our balance sheet and service our debt obligations;
Our ability to quickly and cost-effectively introduce new products to our customers and end-user market with a resulting streamlined customer service model and improved operating margins;
Our ability to continue to successfully launch new products and customer programs to expand our geographic coverage or distribution channels and realize desired operating efficiencies; and
Our ability to manage our cost structure more efficiently via global supply base management, internal sourcing and/or purchasing of materials, selective outsourcing and/or purchasing of support functions, working capital management and a global approach to leverage of our administrative functions.
If we are unable to do any of the foregoing successfully, our financial condition and results of operations could be materially and adversely impacted.
We report shipping and handling expenses associated with Horizon Americas’ distribution network as an element of selling, general and administrative expenses in our consolidated statements of operations. As such, gross margins for Horizon Americas may not be comparable to those of Horizon Europe‑Africa which primarily rely on third-party distributors, for which all costs are included in cost of sales.


24


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

The following table summarizes Adjusted EBITDA for our operating segments for the twelve months ended December 31, 2019 (“4Q19 YTD”):
 
 
Twelve months ended December 31, 2019
 
 
Horizon Americas
 
Horizon Europe-Africa
 
Corporate
 
Consolidated
 
 
(dollars in thousands)
Net income attributable to Horizon Global
 
 
 
 
 
 
 
$
80,750

Net loss attributable to noncontrolling interest
 
 
 
 
 
 
 
(1,240
)
Net income
 
 
 
 
 
 
 
$
79,510

Interest expense
 
 
 
 
 
 
 
58,270

Income tax benefit
 
 
 
 
 
 
 
(10,820
)
Depreciation and amortization
 
 
 
 
 
 
 
21,690

EBITDA
 
$
(4,320
)
 
$
(3,370
)
 
$
156,340

 
$
148,650

Net loss attributable to noncontrolling interest
 

 
1,240

 

 
1,240

Income from discontinued operations, net of tax
 

 

 
(189,520
)
 
(189,520
)
Severance
 
(200
)
 
1,330

 
2,050

 
3,180

Restructuring, relocation and related business disruption costs
 
9,500

 
(1,190
)
 
3,990

 
12,300

Non-cash stock compensation
 

 

 
2,150

 
2,150

Loss on business divestitures and other assets
 
2,070

 
3,630

 

 
5,700

Board transition support
 

 

 
1,450

 
1,450

Product liability and litigation claims
 
820

 
1,760

 

 
2,580

Debt issuance costs
 

 

 
4,070

 
4,070

Unrealized foreign currency remeasurement costs
 

 
(180
)
 
130

 
(50
)
Other
 
560

 
(450
)
 
(170
)
 
(60
)
Adjusted EBITDA
 
$
8,430


$
2,770


$
(19,510
)

$
(8,310
)

25



The following table summarizes Adjusted EBITDA for our operating segments for the twelve months ended December 31, 2018 (“4Q18 YTD”):
 
 
Twelve months ended December 31, 2018
 
 
Horizon Americas
 
Horizon Europe-Africa
 
Corporate
 
Consolidated
 
 
(dollars in thousands)
Net income attributable to Horizon Global
 
 
 
 
 
 
 
$
(203,960
)
Net loss attributable to noncontrolling interest
 
 
 
 
 
 
 
(940
)
Net income
 
 
 
 
 
 
 
$
(204,900
)
Interest expense
 
 
 
 
 
 
 
27,450

Income tax benefit
 
 
 
 
 
 
 
(11,520
)
Depreciation and amortization
 
 
 
 
 
 
 
20,580

EBITDA
 
$
(5,770
)
 
$
(136,610
)
 
$
(26,010
)
 
$
(168,390
)
Net loss attributable to noncontrolling interest
 

 
940

 

 
940

Income from discontinued operations, net of tax
 

 

 
(14,460
)
 
(14,460
)
Severance
 
5,050

 
3,060

 
3,950

 
12,060

Restructuring, relocation and related business disruption costs
 
19,690

 
3,200

 

 
22,890

Impairment of goodwill and intangible assets
 

 
126,770

 

 
126,770

Non-cash stock compensation
 

 

 
1,550

 
1,550

Acquisition and integration costs
 

 
1,390

 
15,870

 
17,260

Loss on business divestitures and other assets
 
6,690

 

 

 
6,690

Unrealized foreign currency remeasurement costs
 
50

 
330

 
490

 
870

Other (income) expense, net
 
340

 
(220
)
 
40

 
160

Adjusted EBITDA
 
$
26,050


$
200


$
(18,570
)

$
7,680

Segment Information
Previously, the Company had three operating segments. However, as a result of the divestiture of our Horizon Asia-Pacific operating segment (“APAC”) in the third quarter of 2019, we have removed APAC as a separate operating segment and its results are presented as a discontinued operation. Historical information has been retrospectively adjusted to reflect these changes. Please see Note 4, Discontinued Operations, and Note 18, Segment Information, included in Item 8, “Financial Statements and Supplementary Data,” within this Annual Report on Form 10-K, for additional information.
The following table summarizes financial information for our operating segments for 4Q19 YTD and 4Q18 YTD:

26


 
 
Twelve months ended December 31,
 
Change
 
Constant Currency Change
 
 
2019
 
As a Percentage of Net Sales
 
2018
 
As a Percentage of Net Sales
 
$
 
%
 
$
 
%
 
 
(dollars in thousands)
Net Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Horizon Americas
 
$
372,720

 
54.0
 %
 
$
390,750

 
54.7
 %
 
$
(18,030
)
 
(4.6
)%
 
$
(17,450
)
 
(4.5
)%
Horizon Europe‑Africa
 
317,730

 
46.0
 %
 
323,260

 
45.3
 %
 
(5,530
)
 
(1.7
)%
 
13,180

 
4.1
 %
Total
 
$
690,450

 
100.0
 %
 
$
714,010

 
100.0
 %
 
$
(23,560
)
 
(3.3
)%
 
$
(4,270
)
 
(0.6
)%
Gross Profit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Horizon Americas
 
$
71,640

 
19.2
 %
 
$
79,930

 
20.5
 %
 
$
(8,290
)
 
(10.4
)%
 
$
(8,130
)
 
(10.2
)%
Horizon Europe‑Africa
 
24,590

 
7.7
 %
 
29,550

 
9.1
 %
 
(4,960
)
 
(16.8
)%
 
(2,960
)
 
(10.0
)%
Total
 
$
96,230

 
13.9
 %
 
$
109,480

 
15.3
 %
 
$
(13,250
)
 
(12.1
)%
 
$
(11,090
)
 
(10.1
)%
Selling, General and Administrative Expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Horizon Americas
 
$
81,450

 
21.9
 %
 
$
86,380

 
22.1
 %
 
$
(4,930
)
 
(5.7
)%
 
$
(4,770
)
 
(5.5
)%
Horizon Europe‑Africa
 
38,050

 
12.0
 %
 
49,540

 
15.3
 %
 
(11,490
)
 
(23.2
)%
 
(9,430
)
 
(19.0
)%
Corporate
 
34,680

 
N/A

 
35,210

 
N/A

 
(530
)
 
(1.5
)%
 

 
 %
Total
 
$
154,180

 
22.3
 %
 
$
171,130

 
24.0
 %
 
$
(16,950
)
 
(9.9
)%
 
$
(14,200
)
 
(8.3
)%
Operating Loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Horizon Americas
 
$
(10,390
)
 
(2.8
)%
 
$
(6,840
)
 
(1.8
)%
 
$
(3,550
)
 
51.9
 %
 
$
(3,560
)
 
52.0
 %
Horizon Europe‑Africa
 
(12,100
)
 
(3.8
)%
 
(148,630
)
 
(46.0
)%
 
136,530

 
(91.9
)%
 
136,580

 
(91.9
)%
Corporate
 
(34,680
)
 
N/A

 
(35,160
)
 
N/A

 
480

 
(1.4
)%
 

 

Total
 
$
(57,170
)
 
(8.3
)%
 
$
(190,630
)
 
(26.7
)%
 
$
133,460

 
(70.0
)%
 
$
133,020

 
(69.8
)%
Capital Expenditures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Horizon Americas
 
$
6,590

 
1.8
 %
 
$
6,760

 
1.7
 %
 
$
(170
)
 
(2.5
)%
 
$
(170
)
 
(2.5
)%
Horizon Europe‑Africa
 
3,080

 
1.0
 %
 
4,500

 
1.4
 %
 
(1,420
)
 
(31.6
)%
 
(900
)
 
(20.0
)%
Corporate
 
50

 
N/A

 

 
N/A

 
50

 
N/A

 

 

Total
 
$
9,720

 
1.4
 %
 
$
11,260

 
1.6
 %
 
$
(1,540
)
 
(13.7
)%
 
$
(1,070
)
 
(9.5
)%
Depreciation and Amortization of Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Horizon Americas
 
$
8,670

 
2.3
 %
 
$
8,160

 
2.1
 %
 
$
510

 
6.3
 %
 
$
550

 
6.7
 %
Horizon Europe‑Africa
 
11,720

 
3.7
 %
 
12,090

 
3.7
 %
 
(370
)
 
(3.1
)%
 
(250
)
 
(2.1
)%
Corporate
 
1,300

 
N/A

 
330

 
N/A

 
970

 
293.9
 %
 

 

Total
 
$
21,690

 
3.1
 %
 
$
20,580

 
2.9
 %
 
$
1,110

 
5.4
 %
 
$
300

 
1.5
 %
Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Horizon Americas
 
$
8,430

 
2.3
 %
 
$
26,050

 
6.7
 %
 
$
(17,620
)
 
(67.6
)%
 
N/A

 
N/A

Horizon Europe-Africa
 
2,770

 
0.9
 %
 
200

 
0.1
 %
 
2,570

 
1,285.0
 %
 
N/A

 
N/A

Corporate
 
(19,510
)
 
N/A

 
(18,570
)
 
N/A

 
(940
)
 
5.1
 %
 
N/A

 
N/A

Total
 
$
(8,310
)

(1.2
)%

$
7,680


1.1
 %

$
(15,990
)

(208.2
)%

N/A


N/A


27



Results of Operations
Twelve Months Ended December 31, 2019 Compared with Twelve Months Ended December 31, 2018
Overall, net sales decreased $23.6 million, or 3.3%, to $690.5 million during 4Q19 YTD, as compared to $714.0 million during 4Q18 YTD, driven by a decrease in net sales in Horizon Americas and Horizon Europe‑Africa. The decrease in net sales within Horizon Americas of $18.0 million was primarily driven by sales decreases in the aftermarket, retail and industrial sales channels, partially offset by increases primarily in the automotive OEM and E-commerce sales channels. The decrease in net sales of $5.5 million in Horizon Europe‑Africa was primarily attributable due to unfavorable currency translation as well as the impact of the Company’s sale of its non-automotive business in the first quarter of 2019. Removing the currency translation impact, net sales increased in Horizon Europe‑Africa on a constant currency basis primarily attributable in the automotive OEM and automotive OES sales channels due to increased volumes.

Gross profit margin (gross profit as a percentage of net sales) approximated 13.9% and 15.3% during 4Q19 YTD and 4Q18 YTD, respectively. Negatively impacting gross profit margin were unfavorable net sales and cost mix driven by tariff costs and the timing and inability to fully recover operating input cost increases in Horizon Americas, partially offset through customer pricing actions. In addition, unfavorable currency translation as well as channel shift mix to lower margin business in Horizon Europe‑Africa drove decreased margins in 4Q19 YTD compared to 4Q18 YTD.
Operating margin (operating profit (loss) as a percentage of net sales) was (8.3)% and (26.7)% during the 4Q19 YTD and 4Q18 YTD, respectively. Operating loss decreased $133.5 million, or 70.0%, to $57.2 million during 4Q19 YTD, as compared to $190.6 million during 4Q18 YTD, primarily due to the absence of the impairment of goodwill and intangible assets totaling $126.8 million in Horizon Europe‑Africa recorded in the prior year. In addition, lower gross profit in both the Horizon Americas and in Horizon Europe‑Africa operating segments negatively impacted operating margin.
Other expense, net decreased $7.4 million to $5.4 million during 4Q19 YTD, as compared to $12.8 million during 4Q18 YTD, primarily due to absence of $5.1 million costs incurred in connection with the termination of the Brink Group acquisition in 4Q18 YTD and a $4.3 million charge related to an unrelated acquisition indemnification asset, partially offset by a $3.6 million loss on sale related to the Company’s divestiture of non-automotive business assets in Horizon Europe‑Africa in the first quarter of 2019.
Interest expense increased $30.8 million, to $58.3 million during 4Q19 YTD, as compared to $27.5 million during 4Q18 YTD. Interest expense increased because of $50.0 million of additional borrowings on the First Lien Term Loan in July 2018 and $51.0 million of additional borrowings on the Second Lien Term Loan in March 2019, which resulted in higher borrowings as well as higher interest rates compared to 4Q18 YTD. In addition, the Company recorded a charge of $8.7 million related to unamortized debt issuance costs due to its debt refinancing and modifications.
The effective income tax rate for 4Q19 YTD and 4Q18 YTD, respectively, was 9.0% and 5.0%, respectively. The higher effective income tax rate for 4Q19 YTD, was primarily due to a $6.6 million benefit related to the release of uncertain tax positions, and the corresponding accrued interest and penalties, in certain jurisdictions during 4Q19 YTD as well as jurisdictional income mix.
Net loss from continuing operations decreased $109.4 million, to a net loss of $110.0 million during 4Q19 YTD, from a net loss of $219.4 million during 4Q18 YTD. The decrease was primarily attributable to decrease of a $133.5 million in operating loss, driven by the absence of the $126.8 million of impairment of goodwill and intangible assets recorded in the during 4Q18 YTD in Horizon Europe‑Africa, partially offset by an increase in operating loss in Horizon Americas.
Income from discontinued operations, net of tax is primarily attributable to the $180.5 million gain that was recognized when the Company completed the sale of APAC during 4Q19 YTD. As a result, APAC has been presented as discontinued operations in our consolidated financial statements in accordance with Accounting Standards Codification 205, “Discontinued Operations”. See Note 4, Discontinued Operations, included in included in Item 8, “Financial Statements and Supplementary Data”, within this Annual Report on Form 10-K for further description of the Company’s discontinued operations.
See below for a discussion of operating results by operating segment.
Horizon Americas    
Net sales by sales channel, in thousands, for Horizon Americas during 4Q19 YTD and 4Q18 YTD are as follows:

28


 
 
Twelve months ended December 31,
 
Change
 
 
2019
 
2018
 
$
 
%
Net Sales
 
 
 
 
 
 
 
 
Automotive OEM
 
$
87,700

 
$
80,300

 
$
7,400

 
9.2
 %
Automotive OES
 
6,950

 
5,610

 
1,340

 
23.9
 %
Aftermarket
 
96,910

 
114,450

 
(17,540
)
 
(15.3
)%
Retail
 
105,970

 
115,920

 
(9,950
)
 
(8.6
)%
Industrial
 
29,390

 
38,810

 
(9,420
)
 
(24.3
)%
E-commerce
 
45,750

 
34,220

 
11,530

 
33.7
 %
Other
 
50

 
1,440

 
(1,390
)
 
(96.5
)%
Total
 
$
372,720


$
390,750

 
$
(18,030
)
 
(4.6
)%
Net sales decreased by $18.0 million, or 4.6%, to $372.7 million during 4Q19 YTD, as compared to $390.8 million during 4Q18 YTD, primarily attributable to a $37.2 million decrease due to lower volumes primarily in the aftermarket, retail and industrial sales channels, partially offset by a $5.7 million decrease in sales discount, returns and allowances. In addition, the lower sales volumes was partially offset by $14.9 million in pricing increases during 4Q19 YTD, which were implemented to recover increased material and input costs and offset higher import tariffs, which took effect during 2018 and were increased during 2019.
Horizon Americas’ gross profit decreased by $8.3 million, or 10.4%, to $71.6 million, or 19.2% of net sales, during 4Q19 YTD, as compared to $79.9 million, or 20.5% of net sales, during 4Q18 YTD. The decrease in gross profit margin reflects the changes in sales detailed above. Additionally, gross profit was impacted by the following:
$13.8 million unfavorable material input costs primarily related to higher freight and tariff costs;
$6.7 million unfavorable manufacturing costs; and
$8.1 million of higher scrap costs and inventory reserves; partially offset by:
$6.4 million of prior-year comparable period restructuring and footprint rationalization projects and related cost inefficiencies that did not reoccur; and
$6.7 million in lower outbound freight costs.
Selling, general and administrative (“SG&A”) expenses decreased by $4.9 million to $81.5 million, or 21.9% of net sales, during 4Q19 YTD, as compared to $86.4 million, or 22.1% of net sales, during 4Q18 YTD. The decrease in SG&A expenses was attributable to the following:
$10.7 million of additional costs incurred in the prior-year comparable period related to restructuring projects and inefficiency costs incurred during the transition to our Kansas City location;
$3.5 million of lower personnel and compensation costs; and
$1.4 million of lower sales and marketing costs; partially offset by:
$6.5 million charge related to the abandonment of leased equipment in its Kansas City location; and
$3.4 million of higher distribution center rent and operating costs.
Horizon Americas’ operating loss increased by $3.6 million to an operating loss of $10.4 million, or (2.8)% of net sales, during 4Q19 YTD, as compared to an operating loss of $6.8 million, or (1.8)% of net sales, during 4Q18 YTD. Operating loss increased primarily due to the decreased net sales and additional operating costs discussed above.
Horizon Americas’ Adjusted EBITDA decreased by $17.6 million to $8.4 million during 4Q19 YTD, as compared to Adjusted EBITDA of $26.1 million during 4Q18 YTD. Adjusted EBITDA decreased primarily due to the decreased net sales and additional operating costs discussed above.
Horizon Europe-Africa

29


Net sales by sales channel, in thousands, for Horizon Europe‑Africa during 4Q19 YTD and 4Q18 YTD are as follows:
 
 
Twelve months ended December 31,
 
Change
 
 
2019
 
2018
 
$
 
%
Net Sales
 
 
 
 
 
 
 
 
Automotive OEM
 
$
181,490

 
$
174,040

 
$
7,450

 
4.3
 %
Automotive OES
 
58,080

 
50,890

 
7,190

 
14.1
 %
Aftermarket
 
69,370

 
77,190

 
(7,820
)
 
(10.1
)%
Industrial
 
2,850

 
3,440

 
(590
)
 
(17.2
)%
E-commerce
 
1,880

 
4,570

 
(2,690
)
 
(58.9
)%
Other
 
4,060

 
13,130

 
(9,070
)
 
(69.1
)%
Total
 
$
317,730

 
$
323,260

 
$
(5,530
)
 
(1.7
)%
Net sales decreased by $5.5 million, or 1.7%, to $317.7 million during 4Q19 YTD, as compared to $323.3 million during 4Q18 YTD, primarily driven by unfavorable currency translation. Removing the currency translation impact, net sales increased $13.2 million. The increase was primarily attributable to higher automotive OEM and automotive OES volumes, partially offset by lower aftermarket shipping volumes and the $12.0 million impact of the Company’s sale of its non-automotive business in the first quarter of 2019.
Horizon Europe-Africa’s gross profit decreased by $5.0 million, or 16.8%, to $24.6 million, or 7.7% of net sales, during 4Q19 YTD, from $29.6 million, or 9.1% of net sales, during 4Q18 YTD. The decrease in gross profit margin reflects the changes in sales detailed above, which is attributable to a sales mix shift from higher margin aftermarket sales to lower margin OE sales. In addition, gross profit was impacted by the following:
$2.6 million of higher inventory reserves;
$2.0 million unfavorable currency translation; and
$1.3 million unfavorable material input and freight costs.
SG&A expenses decreased by $11.5 million to $38.1 million, or 12.0% of net sales, during 4Q19 YTD, as compared to $49.5 million, or 15.3% of net sales, during 4Q18 YTD. The decrease in SG&A expenses was primarily attributable to the following:
$4.1 million of additional costs incurred in the prior-year comparable period related to restructuring and footprint rationalization projects primarily related to the shift in production to our Brasov, Romania production facility;
$3.7 million reduction in functional support and personnel costs due to lower headcount; and
$1.2 million reduction in selling and warehouse expense primarily attributable to personnel costs; partially offset by:
$2.1 million unfavorable currency translation.
Horizon Europe-Africa’s operating loss decreased by $136.5 million to an operating loss of $12.1 million, or (3.8)% of net sales, during 4Q19 YTD, as compared to an operating loss of $148.6 million, or (46.0)% of net sales, during 4Q18 YTD, primarily due to the impairment of goodwill and intangible assets of $126.8 million in the prior-year comparable period, coupled with operational results described above.
Horizon Europe-Africa’s Adjusted EBITDA increased by $2.6 million to $2.8 million during 4Q19 YTD, as compared to Adjusted EBITDA of $0.2 million during 4Q18 YTD. Adjusted EBITDA increased primarily due to the operational results described above.

30


Corporate Expenses
Corporate expenses included in operating loss decreased by $0.5 million to $34.7 million during 4Q19 YTD, as compared to $35.2 million during 4Q18 YTD. The decrease was primarily attributable to the following:
$11.0 million of expenses related to the prior-year termination of the Brink Group acquisition, which did not reoccur; partially offset by:
$5.3 million of lease abandonment and leasehold improvement charges related to the Company’s termination of its former headquarters lease; and
$4.6 million in additional professional fee and other costs related to the Company’s new debt issuance, amendments, consents and related structure changes.
Corporate Adjusted EBITDA was $(19.5) million during 4Q19 YTD, which was lower by $0.9 million, as compared to Adjusted EBITDA of $(18.6) million during 4Q18 YTD. Adjusted EBITDA decreased primarily due the higher professional fee and other costs described above.
Liquidity and Capital Resources
Our capital and working capital requirements are funded through a combination of cash flows from operations, cash on hand and various borrowings and factoring arrangements described below, including our asset-based revolving credit facility (“ABL Facility”). See Note 10, Long-term Debt included in Item 8, “Financial Statements and Supplementary Data,” within this Annual Report on Form 10-K. As of December 31, 2019 and 2018, there was $8.7 million and $26.1 million, respectively, of cash held at foreign subsidiaries. There may be country specific regulations which may restrict or result in increased costs in the repatriation of these funds.
Based on our current and anticipated levels of operations and the condition in our markets and industry, we believe that our cash on hand, cash flow from operations and availability under our ABL Facility will enable us to meet our working capital, capital expenditures, debt service and other funding requirements. Our ability to fund our working capital needs, debt payments and other obligations, and to comply with financial covenants, including borrowing base limitations under our ABL 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 and financial and economic conditions and other factors. Any future acquisitions, joint ventures or other similar transactions will likely require additional capital and there can be no assurance that any such capital will be available to us on acceptable terms, if at all.
In 2018, the Company experienced a combination of increased distribution costs and constrained shipments within the Horizon Americas distribution network primarily resulting from the start-up of its new Kansas City, Kansas aftermarket and retail distribution center. Due to these factors, as well as costs associated with remediating these factors, during the first quarter of 2019, the Company entered into a Senior Term Loan Agreement (“Bridge Loan”) of $10.0 million and a Second Lien Term Loan (“Second Lien Term Loan”) of $51.0 million to repay the Bridge Loan, and amended the First Lien Term Loan to amend certain financial covenants to provide for relief based on the Company’s 2018 and 2019 budget and make certain other affirmative and negative covenants more restrictive. In the second quarter of 2019, the Company entered into the Seventh Term Amendment (as defined below) to amend the First Lien Term Loan agreement to extend 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 entered into the Eighth Term Amendment (as defined below) to provide consent for the sale of APAC, 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. Refer to Note 10, Long-term Debt, in Item 8, “Financial Statements and Supplementary Data,” included within this Annual Report on Form 10-K for additional information.
Cash Flows - Operating Activities
Net cash used for operating activities during 4Q19 YTD was $68.5 million, as compared to $95.6 million in 4Q18 YTD. During 4Q19 YTD, the Company used $63.0 million in cash flows, based on the reported net loss of $110.0 million and after considering the effects of non-cash items related to gains and losses on dispositions of property and equipment, depreciation, amortization of intangible assets, write-off of operating lease assets, impairment of goodwill and intangible assets, amortization of original issuance discount and debt issuance costs, deferred income taxes, stock compensation, paid-in-kind interest, and other, net. During 4Q18 YTD, the Company used $62.8 million based on the reported net loss of $219.4 million and after considering the effects of similar non-cash items.

31


Changes in operating assets and liabilities resulted in a use of cash of $5.5 million and $32.8 million during 4Q19 YTD and 4Q18 YTD, respectively. Changes in accounts receivable resulted in a net source of cash of $19.3 million and a net use of cash of $22.6 million in 4Q19 YTD and 4Q18 YTD, respectively. The decrease in accounts receivable during 4Q19 YTD was primarily driven by pull ahead collection efforts in 2019 and lower 4Q19 sales vs. 4Q18. The increase in accounts receivable in 4Q18 YTD was primarily driven by the recall insurance recovery related to potential claims related to product sold by Horizon Europe-Africa arising from potentially faulty components provided by a supplier. The increase was also driven by pull ahead collection efforts in 2017 that was not repeated in 2018, in addition to a larger portion of the sales growth being in our Horizon Americas segment, as opposed to growth in 2018 in our Horizon Europe-Africa segment where we factor a large portion of our receivables.
Changes in inventory resulted in a net source of cash of $8.4 million and a net use of cash of $6.9 million during 4Q19 YTD and 4Q18 YTD, respectively. The decrease in inventory during 4Q19 YTD is due to higher inventory scrap and reserves as well as improved inventory management. The increase in inventory during 4Q18 YTD was primarily due to the increased material costs in addition to a buildup in anticipation of meeting 1Q19 sales demand.
Changes in prepaid expenses and other assets resulted in a net use of cash of $3.0 million and a net source of cash of $6.2 million during 4Q19YTD and 4Q18YTD, respectively. The increase in prepaid expenses and other assets during 4Q19 YTD was primarily due to a change in the timing of customer payments. The decrease in prepaid expenses and other assets during 4Q18 YTD was primarily due to a change in the timing of customer payments and a reduction of tooling projects.
Changes in accounts payable and accrued liabilities resulted in a use of cash of $30.1 million and $9.5 million during 4Q19 YTD and 4Q18 YTD, respectively. The decrease in accounts payable and accrued liabilities during 4Q19 YTD was primarily due to the timing of payments made to suppliers, mix of vendors and related terms. The decrease in accounts payable and accrued liabilities during 4Q18 YTD was primarily related to payments made to vendors with funding from long-term debt.
Cash Flows - Investing Activities
Net cash provided by investing activities during 4Q19 YTD was $206.5 million, as compared to a use of cash of $11.2 million during 4Q18 YTD. During 2019, net proceeds from the sale of APAC were $209.6 million, and net proceeds from the sale of certain non-automotive business assets were $5.0 million. During 4Q19 YTD, there were lower capital expenditure needs of $9.7 million as compared to $11.3 million during 4Q18 YTD, which related to growth, capacity and productivity-related capital projects, primarily within Horizon Europe‑Africa. We expect our capital spending in the twelve months ended December 31, 2020 to be $12.0 million, primarily related to support for product development, growth and maintenance for the business.
Cash Flows - Financing Activities
Net cash used for financing activities during 4Q19 YTD was $164.7 million. During 4Q18 YTD, net cash provided by financing activities was $82.4 million. During 4Q19 YTD, proceeds from borrowings on our Second Lien Term Loan were $35.5 million, net of issuance costs; net repayments on our ABL Facility totaled $43.5 million, while we used cash of $173.4 million for repayments on our First Lien Term Loan. During 4Q18 YTD, proceeds from borrowings on our First Lien Term Loan were $45.4 million, net of issuance costs; and our net borrowing from our ABL Facility totaled $51.6 million, while we used cash of $9.1 million for repayments on our First Lien Term Loan.
Factoring Arrangements
The Company has factoring arrangements with financial institutions to sell certain accounts receivable under certain recourse and non-recourse agreements. Total receivables sold under the factoring arrangements was $258.4 million and $242.8 million during 4Q19 YTD and 4Q18 YTD, respectively. We utilize factoring arrangements as part of our financing for working capital. 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 an asset-based revolving credit facility (the “ABL Facility”), which provides for $90.0 million of funding on a revolving basis, subject to borrowing base availability, and matures in June 2020. In addition, the Company and certain of our subsidiaries are party to other long-term credit agreements, including the First Lien Term Loan Agreement (formerly known as the “Term Loan”), which matures in June 2021, and the Second Lien Term Loan Agreement, which matures in September 2021.

32


On February 1, 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.
At December 31, 2019, there was $20.0 million outstanding on the ABL Facility bearing interest at a weighted average rate of 5.5%, $25.2 million outstanding on the First Lien Term Loan bearing interest at 8.1% and $57.0 million outstanding on the Second Lien Term Loan bearing interest at 13.3%. The Company had $33.1 million of availability under the ABL Facility as of December 31, 2019. Refer to Note 10, Long-term Debt, in Item 8, “Financial Statements and Supplementary Data,” included within this Annual Report on Form 10-K for additional information.
ABL Facility
On February 20, 2019, the Company amended its ABL Facility permit the Company to enter into the Senior Term Loan Agreement and make certain indebtedness, asset sale, investment and restricted payment baskets covenants more restrictive.
On March 7, 2019, the Company amended the ABL Facility to permit the Company to enter into the Second Lien Term Loan Agreement 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.
Loan and Security Agreement
On March 13, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Encina Business Credit, LLC, as agent for the lenders party thereto. The Loan Agreement provides for an asset-based revolving credit facility in the maximum aggregate principal amount of $75.0 million subject to customary borrowing base limitations contained therein, which amount may be increased at the Company’s request by up to $25.0 million. A portion of the proceeds received by the Company under the Loan Agreement were used to pay in full all outstanding debt incurred under the Company’s existing ABL Facility described above.
The interest on the loans under the Loan Agreement will be payable in cash at the interest rate of LIBOR plus 4.00% per annum, subject to a 1.00% LIBOR floor, provided that if for any reason the loans are converted to base rate loans, interest will be paid in cash at the customary base rate plus a margin of 3.00% per annum. There are no amortization payments required under the Loan Agreement. Borrowings under the Loan Agreement mature on the earlier of: (i) March 13, 2023 and (ii) 90 days prior to the maturity of any portion of the debt under the Company’s First Lien Term Loan or Second Lien Term Loan, as may be in effect from time to time, unless earlier terminated. Based on the maturity dates of the Company’s First Lien Term Loan and Second Lien Term Loan, the loans under the Loan Agreement would be due on March 31, 2021. 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 guarantors, and the borrowers under the Loan Agreement.
The Loan Agreement also contains a financial covenant that stipulates the Company will not make Capital Expenditures (as defined in the Loan Agreement) exceeding $30.0 million during any fiscal year.
First Lien Term Loan Agreement
On July 31, 2018, the Company entered into an amendment to the First Lien Term Loan, which provided for additional borrowings of $50.0 million that were used to pay outstanding balances under the ABL Facility, pay fees and expenses in connection with the amendment and for general corporate purposes.
On February 20, 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.
On March 15, 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.

33


On May 7, 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 APAC, provide consent for the Company to meet its prepayment obligation of the First Lien Term Loan Agreement, 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
On March 13, 2020, the Company entered into the Ninth Amendment to the First Lien Term Loan Agreement (the “Ninth Term Amendment”) to amend certain covenants. The Ninth Term Amendment removed the $15.0 million minimum liquidity requirement under the First Lien Term Loan Agreement. The Ninth Term Amendment also amended the net leverage ratio requirements under the First Lien Term Loan Agreement to remove the December 31, 2020 leverage ratio test, as set forth in the Eighth Term Amendment above.
The Ninth Term Amendment also amended the fixed charge coverage ratio covenant under the First Lien Term Loan to not be below 1.0 to 1.0 beginning with the fiscal quarter ending March 31, 2021.
Senior Term Loan Agreement
On February 20, 2019, the Company entered into a credit agreement (the “Senior Term Loan Agreement”) with Cortland Capital Markets Services LLC, as administrative agent and collateral agent, and the lenders party thereto. The Senior Term Loan Agreement provided for a short-term loan facility in the aggregate principal amount of $10.0 million, all of which was borrowed by the Company. Certain of the lenders under the Company’s Term Loan Agreement, are the lenders under the Senior Term Loan Agreement.
The Senior Term Loan Agreement required the Company to obtain additional financing in amounts and on terms acceptable to the lenders. The Senior Term Loan Agreement was repaid on March 15, 2019, in conjunction with the additional financing further detailed below.
Second Lien Term Loan Agreement
On March 15, 2019, the Company entered into a credit agreement (the “Second Lien Term Loan Agreement”) with Cortland Capital Markets Services LLC, as administrative agent and collateral agent, and Corre Partners Management L.L.C. as representative of the lenders, and the lenders party thereto. The Second Lien Term Loan Agreement provides for a term loan facility in the aggregate principal amount of $51.0 million and matures on September 30, 2021. The Second Lien Term Loan Agreement is secured by a second lien on substantially the same collateral as the First Lien Term Loan, bears an interest rate of LIBOR plus 11.5% payable in kind through an increase in principal balance, and is subject to various affirmative and negative covenants including a secured net leverage ratio tested quarterly, commencing with the fiscal quarter ending on December 31, 2019, which shall not exceed (x) 6.75 to 1.00 as of the last day of any fiscal quarter ending on or prior to June 30, 2020 and (y) 5.25 to 1.00 as of the last day of any fiscal quarter ending on or after September 30, 2020.
Pursuant to the Second Lien Term Loan Agreement, the Company was required to issue detachable warrants to purchase up 6.25 million shares of its common stock, which can be exercised on a cashless basis over a five-year term with an exercise price of $1.50 per share. In March 2019, warrants to purchase 3,601,902 shares of common stock were issued and the Company also issued 90,667 shares of Series A Preferred Stock in the interim that were convertible into additional warrants upon receipt of shareholder approval of the issuance of such additional warrants and the shares of common stock issuable upon exercise thereof. Upon receipt of such shareholder approval on June 25, 2019, the 90,667 shares of Series A Preferred Stock were converted into warrants to purchase 2,952,248 shares of common stock.

34


In connection with the entry into the Second Lien Term Loan Agreement, we agreed to appoint four new members to our board of directors within seven business days of closing, and that the four new members of our board will constitute a majority of our board of directors.
The proceeds, net of applicable fees, of the Second Lien Term Loan Agreement were used to repay all amounts outstanding under the Senior Term Loan Agreement and to provide additional liquidity and working capital for the Company.
In September 2019, the Company amended the existing Second Lien Term Loan Agreement (“Second Lien Amendment”) to remove the prepayment requirement related to the use of APAC sale proceeds and made certain negative covenants less restrictive. Pursuant to the Second Lien 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, consistent with the Eighth Term Amendment above.

On March 13, 2020, the Company entered into the Second Amendment to the Second Lien Term Loan Agreement (the “Second Lien Second Amendment”) to amend certain covenants. The Second Lien Second Amendment removed the $15.0 million minimum liquidity requirement under the Second Lien Term Loan Agreement. The Second Lien Second Amendment also amended the net leverage ratio requirements under the Second Lien Term Loan Agreement to remove the December 31, 2020 leverage ratio test, consistent with the Ninth Term Amendment above.
The Second Lien Second Amendment also amended the fixed charge coverage ratio covenant under the Second Lien Term Loan to not be below 1.0 to 1.0 beginning with the fiscal quarter ending March 31, 2021.
Covenant and Liquidity Matters
The agreements governing the ABL Facility contain 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 ABL Facility does not include any financial maintenance covenants other than a springing minimum fixed charge coverage ratio of at least 1.00 to 1.00 on a trailing twelve-month basis, which will be tested only upon the occurrence of an event of default or certain other conditions as specified in the agreement.
We are subject to variable interest rates on our ABL Facility, First Lien Term Loan and Second Lien Term Loan. At December 31, 2019, 1-Month LIBOR and 3-Month LIBOR approximated 1.76% and 1.91%, respectively.
The Company estimates it incurred $2.7 million of debt issuance costs and amendment fees associated with the above transactions. The transactions will be accounted for in the first quarter of 2020.

The Company is in compliance with all of its financial covenants as of December 31, 2019. As a result of the above series of amendments and entry into the Loan Agreement in March 2020, and our current forecast through March 31, 2021, the Company believes it has sufficient liquidity to operate its business.
Refer to Note 10, Long-term Debt, and Note 21, Subsequent Events, in Item 8, “Financial Statements and Supplementary Data,” included within this Annual Report on Form 10-K for additional information.
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 annual rent expense related thereto for 4Q19 YTD $18.8 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.
Consolidated EBITDA

Consolidated EBITDA (defined as “Consolidated EBITDA” in our First Lien Term Loan Agreement and Second Lien Term Loan Agreement, collectively “Term Loan Agreements”) is a comparable measure to how the Company assesses performance. As discussed further in the Segment Information and Supplemental Analysis section above, we use certain non-GAAP financial measures to assess performance and measure our covenant compliance in accordance with the Term Loan Agreements, which includes Adjusted EBITDA at the operating segment level. For the measurement of our Term Loan Agreements 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 that can be excluded to $5 million in any cumulative four fiscal quarter period.

35


The reconciliations of net income (loss) attributable to Horizon Global to EBITDA, EBITDA to Adjusted EBITDA and Adjusted EBITDA to Consolidated EBITDA for the twelve months ended December 31, 2019 and 2018 are as follows:
 
 
Twelve months ended December 31,
 
 
2019
 
2018
 
Change
 
 
(dollars in thousands)
Net income (loss) attributable to Horizon Global
 
$
80,750

 
$
(203,960
)
 
$
284,710

Net loss attributable to noncontrolling interest
 
(1,240
)
 
(940
)
 
(300
)
Net income (loss)
 
79,510


(204,900
)

284,410

Interest expense
 
58,270

 
27,450

 
30,820

Income tax benefit
 
(10,820
)
 
(11,520
)
 
700

Depreciation and amortization
 
21,690

 
20,580

 
1,110

EBITDA
 
148,650


(168,390
)

317,040

Net loss attributable to noncontrolling interest
 
1,240

 
940

 
300

Income from discontinued operations, net of tax
 
(189,520
)
 
(14,460
)
 
(175,060
)
EBITDA from continuing operations
 
(39,630
)

(181,910
)

142,280

Adjustments pursuant to Term Loan Agreements:
 
 
 
 
 
 
Losses on sale of receivables
 
1,590

 
1,730

 
(140
)
Non-cash equity grant expenses
 
2,150

 
1,550

 
600

Other non-cash expenses or losses
 
3,710

 
132,000

 
(128,290
)
Term Loans related fees, costs and expenses
 
2,920

 

 
2,920

Lender agent related professional fees, costs, and expenses
 
840

 

 
840

Non-recurring expenses or costs (a)
 
19,940

 
53,650

 
(33,710
)
Non-cash losses on asset sales
 
(300
)
 
2,210

 
(2,510
)
Other
 
470

 
(1,550
)
 
2,020

Adjusted EBITDA
 
(8,310
)

7,680


(15,990
)
Non-recurring expense limitation (a) (b)
 
(9,940
)
 
(43,650
)
 
33,710

Other
 
(470
)
 
1,550

 
(2,020
)
Consolidated EBITDA
 
$
(18,720
)

$
(34,420
)

$
15,700

(a) Non-recurring expenses or costs including severance, restructuring and relocation are not to, in aggregate, exceed $10 million in adjustments in determining Consolidated EBITDA in any four fiscal quarter period.
(b) Fees, costs and expenses incurred in connection with any proposed asset sale are not to, in aggregate, exceed $5 million in adjustments in determining Consolidated EBITDA in any four fiscal quarter period.
Credit Rating
We and certain of our outstanding debt obligations are rated by Standard & Poor’s and Moody’s. On June 14, 2019, Moody’s issued a rating of Caa3 for our senior secured term loan and a rating of C for our corporate family rating. Moody’s also assigned the Company a stable outlook. On December 10, 2019, Standard & Poor’s issued a rating of B- for our senior secured term loan, an affirmed rating of CCC for our corporate credit rating and a rating of CC for our Convertible Notes. Standard & Poor’s also assigned the Company a negative outlook.
If our credit ratings were to decline, our ability to access certain financial markets may become limited, our cost of borrowings may increase, the perception of us in the view of our customers, suppliers and security holders may worsen and as a result, we may be adversely affected.
Outlook
Our global business remains susceptible to economic conditions that could adversely affect our results. In the near term, the economies that most significantly affect our demand, including the United States and the European Union, are expected to continue to grow. We have been impacted by United States enacted tariffs on imports from China that continued and expanded in 2019. The Company endeavors to recover incremental input costs through pricing actions, but the recoveries generally occur over time. The impact of potential changes in these tariffs during 2020 is uncertain, as well as the potential for recoveries through pricing actions. If geopolitical tensions, particularly in East Asia, escalate, it may affect global consumer sentiment affecting the expected economic

36


growth in the near-term. In addition, the Company will monitor the impact of the coronavirus (COVID-19) outbreak, which began in late 2019, on its business. The industry’s global supply chain has a potential to be impacted, but is not yet know to what extent, if any.
Due to its historical performance and liquidity needs, during the first quarter of 2019, the Company entered into the Bridge Loan of $10.0 million and the Second Lien Term Loan of $51.0 million to repay the Bridge Loan and entered into the Sixth Term Amendment to amend certain financial covenants to provide for relief based on the Company’s 2018 and 2019 operating performance and make certain other affirmative and negative covenants more restrictive. In addition, the Company used certain of the proceeds from the sale of APAC to pay down $163.3 million of its First Lien Term Loan, satisfying its $100.0 million prepayment requirement under the First Lien Term Loan. In conjunction with the sale of APAC and pay down of the First Lien Term Loan discussed above, the Company entered into certain amendments and consents from its various lender groups to remove its quarterly principal payment obligation, as well as amend certain of its financial covenants related to the First Lien Term Loan and Second Lien Term Loan to not be measured until the fourth quarter 2020. The amendments discussed above allowed the Company to keep $36.3 million of the proceeds from the sale of APAC to provide for its liquidity needs. Although we were able to obtain new financing and amendments to our existing agreements, we remain focused on maintaining liquidity to fund our operations, as well as remain focused on our future maturities in its capital structure, which have been addressed and will continue to be addressed as the Company works through its operational improvement initiatives in 2020. These initiatives were put in place to streamline and simplify its operations and realize gross profit improvements and generate positive cash flows to fund its organic business growth needs.
We believe the unique global footprint we enjoy in our market space will benefit us as our OE customers continue to demonstrate a preference for stronger relationships with few suppliers. We believe that our strong brand positions, portfolio of product offerings, and existing customer relationships present a long-term opportunity for us and provide leverage to see balanced growth in OE and aftermarket business. 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.
While a strong global economy offers opportunities for growth and cost leverage, we are committed to delivering on our operational improvement initiatives to drive margin improvement and generate free cash flow. We believe our internal operational improvement initiatives, if executed well, will have a positive impact on our margins in future periods.
Our strategic priorities are to improve our capital structure, drive operating margins, stabilize the operations in the near term and drive top line growth.
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 policies 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

37


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 4.3% to 4.8% 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, on at least a quarterly basis, the financial performance of each business unit for indicators of impairment. 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.    We periodically review goodwill for impairment indicators. We review goodwill for impairment at the reporting unit level on an annual basis as of October 1. More frequent evaluations may be required if we experience changes in our business climate or as a result of other triggering events that take place. We perform 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 impairment analysis for goodwill is performed at the reporting unit level using a quantitative approach. Our qualitative assessment involves significant estimates, assumptions, and judgments, including, but not limited to, macroeconomic conditions, industry and market conditions, financial performance of the Company, reporting unit specific events and changes in the Company’s share price. 
The quantitative test is a comparison of the fair value of the reporting unit, determined using a combination of the income and market approaches, to its recorded amount. If the recorded amount exceeds the fair value, an impairment is recorded to reduce the carrying amount to fair value, but will not exceed the amount of goodwill that is recorded. When performing a quantitative goodwill test, the fair value determination consists primarily of using significant unobservable inputs (Level 3) under the fair value measurement standards. We believe the most critical assumptions and estimates in determining the estimated fair value of our reporting units include, but are not limited to, the amounts and timing of expected future cash flows which is largely dependent on expected EBITDA margins, the discount rate applied to those cash flows, and terminal growth rates. The assumptions used in determining our expected future cash flows consider various factors such as historical operating trends and long-term operating strategies and initiatives. The discount rate used by each reporting unit is based on our assumption of a prudent investor’s required rate of return of assuming the risk of investing in a particular company in a specific country. The terminal growth rate reflects the sustainable operating income a reporting unit could generate in a perpetual state as a function of revenue growth, inflation and future margin expectations.
We review indefinite-lived intangible assets for impairment annually or more frequently if events or changes in circumstances indicate the assets might be impaired. Similar to the goodwill assessment described above, 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.
See Note 6, 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 using current enacted tax rates 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. We determine valuation allowances based on an assessment of positive and negative evidence on a jurisdiction-by-jurisdiction basis and record a valuation allowance to reduce deferred tax assets to the amount more likely than not to be realized. To make this assessment, we evaluated 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 is greater than 50% likely 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.

38


We are also currently subject to tax controversies in various jurisdictions, and these jurisdictions may assesses 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 19, 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.
Emerging Growth Company
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, establishes a class of company called an “emerging growth company,” which generally is a company whose initial public offering was completed after December 8, 2011 and had total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year. We currently qualify as an emerging growth company.
As an emerging growth company, we are eligible to take advantage of certain exemptions from various reporting requirements that are not available to public reporting companies that do not qualify for this classification, including without limitation the following:
An emerging growth company is exempt from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and financial statements, commonly known as an “auditor discussion and analysis.”
An emerging growth company is not required to hold a nonbinding advisory stockholder vote on executive compensation or any golden parachute payments not previously approved by stockholders.
An emerging growth company is not required to comply with the requirement of auditor attestation of management’s assessment of internal control over financial reporting, which is required for other public reporting companies by Section 404 of the Sarbanes-Oxley Act.
An emerging growth company is eligible for reduced disclosure obligations regarding executive compensation in its periodic and annual reports, including without limitation exemption from the requirement to provide a compensation discussion and analysis describing compensation practices and procedures.
A company that is an emerging growth company is eligible for reduced financial statement disclosure in registration statements, which must include two years of audited financial statements rather than the three years of audited financial statements that are required for other public reporting companies.
For as long as we continue to be an emerging growth company, we expect that we will take advantage of the reduced disclosure obligations available to us as a result of this classification. We will remain an emerging growth company until the earlier of (i) December 31, 2020, the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act; (ii) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion (subject to further adjustment for inflation) or more; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under applicable SEC rules. We expect that we will remain an emerging growth company for the foreseeable future, but cannot retain our emerging growth company status indefinitely and will no longer qualify as an emerging growth company on or before December 31, 2020.
Emerging growth companies may elect to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to “opt out” of such extended transition period, and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for companies that are not “emerging growth companies.” Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

39


Not applicable.

40


Item 8.    Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and 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, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), cash flows, and shareholders’ equity for each of the two years in the period ended December 31, 2019 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, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, effective January 1, 2019, the Company adopted the Financial Accounting Standards Board Accounting Standards Update 2016-02, Leases, using the modified retrospective approach.

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 Public Company Accounting Oversight Board (United States) (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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

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.

Emphasis of Matter - Subsequent Events

As discussed in Note 21 to the financial statements, the Company entered into a Loan and Security Agreement, as well as a series of modifications to its existing debt facilities.

/s/ Deloitte & Touche LLP

Detroit, Michigan
March 16, 2020

We have served as the Company's auditor since 2014.

41


HORIZON GLOBAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

 
 
December 31,
 
 
2019
 
2018
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
11,770

 
$
27,650

Receivables, net
 
71,680

 
95,170

Inventories
 
136,650

 
152,200

Prepaid expenses and other current assets
 
8,570

 
8,270

Current assets held-for-sale
 

 
36,080

   Total current assets
 
228,670

 
319,370

Property and equipment, net
 
75,830

 
86,500

Operating lease right-of-use assets
 
45,770

 

Goodwill
 
4,350

 
4,500

Other intangibles, net
 
60,120

 
69,400

Deferred income taxes
 
430

 
660

Non-current assets held-for-sale
 

 
34,790

Other assets
 
5,870

 
6,130

   Total assets
 
$
421,040

 
$
521,350

Liabilities and Shareholders' Equity
 
 
 
 
Current liabilities:
 
 
 
 
Short-term borrowings and current maturities, long-term debt
 
$
4,310

 
$
13,860

Accounts payable
 
78,450

 
102,350

Short-term operating lease liabilities
 
9,880

 

Current liabilities held-for-sale
 

 
28,080

Accrued liabilities
 
48,850

 
58,520

   Total current liabilities
 
141,490

 
202,810

Gross long-term debt
 
236,550

 
382,220

Unamortized debt issuance costs and discount
 
(31,500
)
 
(31,570
)
Long-term debt

205,050


350,650

Deferred income taxes
 
4,040

 
12,620

Long-term operating lease liabilities
 
48,070

 

Non-current liabilities held-for-sale
 

 
1,740

Other long-term liabilities
 
13,790

 
19,750

   Total liabilities
 
412,440

 
587,570

Contingencies (See Note 14)
 





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

 

Common stock, $0.01 par: Authorized 400,000,000 shares; 26,073,894 shares issued and 25,387,388 outstanding at December 31, 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 December 31, 2019; none issued and outstanding at December 31, 2018
 
10,610

 

Paid-in capital
 
163,240

 
160,990

Treasury stock, at cost: 686,506 shares at December 31, 2019 and December 31, 2018
 
(10,000
)
 
(10,000
)
Accumulated deficit
 
(141,970
)
 
(222,720
)
Accumulated other comprehensive (loss) income
 
(9,790
)
 
7,760

Total Horizon Global shareholders' equity (deficit)
 
12,340

 
(63,720
)
Noncontrolling interest
 
(3,740
)
 
(2,500
)
Total shareholders' equity (deficit)
 
8,600

 
(66,220
)
   Total liabilities and shareholders' equity
 
$
421,040

 
$
521,350

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

42


HORIZON GLOBAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share data)

 
 
Twelve months ended December 31,
 
 
2019
 
2018
Net sales
 
$
690,450

 
$
714,010

Cost of sales
 
(594,220
)
 
(604,530
)
Gross profit
 
96,230

 
109,480

Selling, general and administrative expenses
 
(154,180
)
 
(171,130
)
Impairment of goodwill and intangible assets
 

 
(126,770
)
Net gain (loss) on dispositions of property and equipment
 
780

 
(2,210
)
Operating loss
 
(57,170
)
 
(190,630
)
Other expense, net
 
(5,390
)
 
(12,800
)
Interest expense
 
(58,270
)
 
(27,450
)
Loss from continuing operations before income tax
 
(120,830
)
 
(230,880
)
Income tax benefit
 
10,820

 
11,520

Net loss from continuing operations
 
(110,010
)
 
(219,360
)
Income from discontinued operations, net of income taxes
 
189,520

 
14,460

Net income (loss)
 
79,510

 
(204,900
)
Less: Net loss attributable to noncontrolling interest
 
(1,240
)
 
(940
)
Net income (loss) attributable to Horizon Global
 
$
80,750

 
$
(203,960
)
 
 
 
 
 
Net income (loss) per share attributable to Horizon Global:
 
 
 
 
Basic:
 
 
 
 
Continuing operations
 
$
(4.30
)
 
$
(8.72
)
Discontinued operations
 
7.49

 
0.58

Total
 
$
3.19

 
$
(8.14
)
Diluted:
 
 
 
 
Continuing operations
 
$
(4.30
)
 
$
(8.72
)
Discontinued operations
 
7.49

 
0.58

Total
 
$
3.19

 
$
(8.14
)
Weighted average common shares outstanding:
 
 
 
 
Basic
 
25,297,576

 
25,053,013

Diluted