Item 1. Condensed Consolidated Financial Statements
HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited—dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Assets
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
34,230
|
|
|
$
|
11,770
|
|
|
Restricted cash
|
|
5,770
|
|
|
—
|
|
|
Receivables, net
|
|
86,500
|
|
|
71,680
|
|
|
Inventories
|
|
116,220
|
|
|
136,650
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
8,870
|
|
|
8,570
|
|
|
|
|
|
|
|
|
Total current assets
|
|
251,590
|
|
|
228,670
|
|
|
Property and equipment, net
|
|
73,260
|
|
|
75,830
|
|
|
Operating lease right-of-use assets
|
|
44,130
|
|
|
45,770
|
|
|
Goodwill
|
|
3,200
|
|
|
4,350
|
|
|
Other intangibles, net
|
|
56,450
|
|
|
60,120
|
|
|
Deferred income taxes
|
|
490
|
|
|
430
|
|
|
|
|
|
|
|
|
Other assets
|
|
7,680
|
|
|
5,870
|
|
|
Total assets
|
|
$
|
436,800
|
|
|
$
|
421,040
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Short-term borrowings and current maturities, long-term debt
|
|
$
|
10,060
|
|
|
$
|
4,310
|
|
|
Accounts payable
|
|
85,330
|
|
|
78,450
|
|
|
Short-term operating lease liabilities
|
|
10,270
|
|
|
9,880
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
50,890
|
|
|
48,850
|
|
|
Total current liabilities
|
|
156,550
|
|
|
141,490
|
|
|
Gross long-term debt
|
|
265,290
|
|
|
236,550
|
|
|
Unamortized debt issuance costs and discount
|
|
(25,330)
|
|
|
(31,500)
|
|
|
Long-term debt
|
|
239,960
|
|
|
205,050
|
|
|
Deferred income taxes
|
|
4,040
|
|
|
4,040
|
|
|
Long-term operating lease liabilities
|
|
46,610
|
|
|
48,070
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
15,780
|
|
|
13,790
|
|
|
Total liabilities
|
|
462,940
|
|
|
412,440
|
|
|
Contingencies (See Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
Preferred stock, $0.01 par: Authorized 100,000,000 shares; Issued and outstanding: None
|
|
—
|
|
|
—
|
|
|
Common stock, $0.01 par: Authorized 400,000,000 shares; 26,478,135 shares issued and 25,791,629 outstanding at June 30, 2020, and 26,073,894 shares issued and 25,387,388 outstanding at December 31, 2019
|
|
250
|
|
|
250
|
|
|
Common stock warrants exercisable for 6,443,910 and 6,487,674 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
|
|
10,610
|
|
|
10,610
|
|
|
Paid-in capital
|
|
164,550
|
|
|
163,240
|
|
|
Treasury stock, at cost: 686,506 shares at June 30, 2020 and December 31, 2019
|
|
(10,000)
|
|
|
(10,000)
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
(175,050)
|
|
|
(141,970)
|
|
|
Accumulated other comprehensive loss
|
|
(12,090)
|
|
|
(9,790)
|
|
|
Total Horizon Global shareholders' (deficit) equity
|
|
(21,730)
|
|
|
12,340
|
|
|
Noncontrolling interest
|
|
(4,410)
|
|
|
(3,740)
|
|
|
Total shareholders' (deficit) equity
|
|
(26,140)
|
|
|
8,600
|
|
|
Total liabilities and shareholders' equity
|
|
$
|
436,800
|
|
|
$
|
421,040
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited—dollars in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net sales
|
|
$
|
120,490
|
|
|
$
|
192,650
|
|
|
$
|
283,740
|
|
|
$
|
370,320
|
|
|
Cost of sales
|
|
(102,440)
|
|
|
(156,340)
|
|
|
(239,440)
|
|
|
(310,450)
|
|
|
Gross profit
|
|
18,050
|
|
|
36,310
|
|
|
44,300
|
|
|
59,870
|
|
|
Selling, general and administrative expenses
|
|
(26,000)
|
|
|
(33,670)
|
|
|
(58,860)
|
|
|
(72,040)
|
|
|
Net (loss) gain on dispositions of property and equipment
|
|
(20)
|
|
|
10
|
|
|
(90)
|
|
|
1,450
|
|
|
Operating (loss) profit
|
|
(7,970)
|
|
|
2,650
|
|
|
(14,650)
|
|
|
(10,720)
|
|
|
Other (expense) income, net
|
|
(450)
|
|
|
500
|
|
|
(2,120)
|
|
|
(4,970)
|
|
|
Interest expense
|
|
(8,220)
|
|
|
(15,320)
|
|
|
(16,410)
|
|
|
(26,150)
|
|
|
Loss from continuing operations before income tax
|
|
(16,640)
|
|
|
(12,170)
|
|
|
(33,180)
|
|
|
(41,840)
|
|
|
Income tax (expense) benefit
|
|
(80)
|
|
|
1,040
|
|
|
(70)
|
|
|
1,310
|
|
|
Net loss from continuing operations
|
|
(16,720)
|
|
|
(11,130)
|
|
|
(33,250)
|
|
|
(40,530)
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
—
|
|
|
2,990
|
|
|
(500)
|
|
|
6,770
|
|
|
Net loss
|
|
(16,720)
|
|
|
(8,140)
|
|
|
(33,750)
|
|
|
(33,760)
|
|
|
Less: Net loss attributable to noncontrolling interest
|
|
(380)
|
|
|
(60)
|
|
|
(670)
|
|
|
(580)
|
|
|
Net loss attributable to Horizon Global
|
|
$
|
(16,340)
|
|
|
$
|
(8,080)
|
|
|
$
|
(33,080)
|
|
|
$
|
(33,180)
|
|
|
Net (loss) income per share attributable to Horizon Global:
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.64)
|
|
|
$
|
(0.44)
|
|
|
$
|
(1.28)
|
|
|
$
|
(1.58)
|
|
|
Discontinued operations
|
|
—
|
|
|
0.12
|
|
|
(0.02)
|
|
|
0.27
|
|
|
Total
|
|
$
|
(0.64)
|
|
|
$
|
(0.32)
|
|
|
(1.30)
|
|
|
(1.31)
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.64)
|
|
|
$
|
(0.44)
|
|
|
(1.28)
|
|
|
(1.58)
|
|
|
Discontinued operations
|
|
—
|
|
|
0.12
|
|
|
(0.02)
|
|
|
0.27
|
|
|
Total
|
|
$
|
(0.64)
|
|
|
$
|
(0.32)
|
|
|
(1.30)
|
|
|
(1.31)
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
25,618,793
|
|
|
25,282,791
|
|
|
25,509,794
|
|
|
25,235,704
|
|
|
Diluted
|
|
25,618,793
|
|
|
25,282,791
|
|
|
25,509,794
|
|
|
25,235,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited—dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net loss
|
|
$
|
(16,720)
|
|
|
$
|
(8,140)
|
|
|
$
|
(33,750)
|
|
|
$
|
(33,760)
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation and other
|
|
2,040
|
|
|
80
|
|
|
(2,300)
|
|
|
1,290
|
|
|
Derivative instruments
|
|
—
|
|
|
(210)
|
|
|
—
|
|
|
(1,280)
|
|
|
Total other comprehensive income (loss), net of tax
|
|
2,040
|
|
|
(130)
|
|
|
(2,300)
|
|
|
10
|
|
|
Total comprehensive loss
|
|
(14,680)
|
|
|
(8,270)
|
|
|
(36,050)
|
|
|
(33,750)
|
|
|
Less: Comprehensive loss attributable to noncontrolling interest
|
|
(380)
|
|
|
(60)
|
|
|
(670)
|
|
|
(580)
|
|
|
Comprehensive loss attributable to Horizon Global
|
|
$
|
(14,300)
|
|
|
$
|
(8,210)
|
|
|
$
|
(35,380)
|
|
|
$
|
(33,170)
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited—dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
Net loss
|
|
$
|
(33,750)
|
|
|
$
|
(33,760)
|
|
|
Less: (Loss) income from discontinued operations
|
|
(500)
|
|
|
6,770
|
|
|
Net loss from continuing operations
|
|
(33,250)
|
|
|
(40,530)
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss from continuing operations to net cash provided by (used for) operating activities:
|
|
|
|
|
|
Net loss (gain) on dispositions of property and equipment
|
|
90
|
|
|
(1,450)
|
|
|
Depreciation
|
|
7,100
|
|
|
7,390
|
|
|
Amortization of intangible assets
|
|
3,430
|
|
|
3,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of original issuance discount and debt issuance costs
|
|
8,100
|
|
|
9,900
|
|
|
Deferred income taxes
|
|
10
|
|
|
260
|
|
|
Non-cash compensation expense
|
|
1,320
|
|
|
940
|
|
|
Paid-in-kind interest
|
|
3,660
|
|
|
4,370
|
|
|
Increase in receivables
|
|
(16,780)
|
|
|
(28,510)
|
|
|
Decrease (increase) in inventories
|
|
19,270
|
|
|
(7,820)
|
|
|
Increase in prepaid expenses and other assets
|
|
(2,890)
|
|
|
(1,040)
|
|
|
Increase in accounts payable and accrued liabilities
|
|
13,460
|
|
|
4,270
|
|
|
Other, net
|
|
1,380
|
|
|
(13,920)
|
|
|
Net cash provided by (used for) operating activities for continuing operations
|
|
4,900
|
|
|
(63,010)
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
Capital expenditures
|
|
(5,450)
|
|
|
(5,680)
|
|
|
Net proceeds from sale of business
|
|
—
|
|
|
4,970
|
|
|
Net proceeds from disposition of property and equipment
|
|
70
|
|
|
1,550
|
|
|
Net cash (used for) provided by investing activities for continuing operations
|
|
(5,380)
|
|
|
840
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
Proceeds from borrowings on credit facilities
|
|
6,290
|
|
|
14,100
|
|
|
Repayments of borrowings on credit facilities
|
|
(1,210)
|
|
|
(840)
|
|
|
Proceeds from Second Lien Term Loan, net of issuance costs
|
|
—
|
|
|
35,520
|
|
|
Repayments of borrowings on First Lien Term Loan, inclusive of transaction costs
|
|
—
|
|
|
(10,090)
|
|
|
Proceeds from Revolving Credit Facility, net of issuance costs
|
|
54,680
|
|
|
—
|
|
|
Repayments of borrowings on Revolving Credit Facility
|
|
(19,180)
|
|
|
—
|
|
|
Proceeds from ABL revolving debt, net of issuance costs
|
|
8,000
|
|
|
60,340
|
|
|
Repayments of borrowings on ABL revolving debt
|
|
(27,920)
|
|
|
(72,080)
|
|
|
Proceeds from Paycheck Protection Plan (PPP) Loan
|
|
8,670
|
|
|
—
|
|
|
Proceeds from issuance of Series A Preferred Stock
|
|
—
|
|
|
5,340
|
|
|
Proceeds from issuance of Warrants
|
|
—
|
|
|
5,380
|
|
|
Other, net
|
|
(10)
|
|
|
(10)
|
|
|
Net cash provided by financing activities for continuing operations
|
|
29,320
|
|
|
37,660
|
|
|
Discontinued Operations:
|
|
|
|
|
|
Net cash (used for) provided by discontinued operating activities
|
|
(500)
|
|
|
14,250
|
|
|
Net cash used for discontinued investing activities
|
|
—
|
|
|
(920)
|
|
|
Net cash provided by discontinued financing activities
|
|
—
|
|
|
—
|
|
|
Net cash (used for) provided by discontinued operations
|
|
(500)
|
|
|
13,330
|
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
|
(110)
|
|
|
290
|
|
|
Cash, Cash Equivalents and Restricted Cash:
|
|
|
|
|
|
Increase (decrease) for the period
|
|
28,230
|
|
|
(10,890)
|
|
|
At beginning of period
|
|
11,770
|
|
|
27,650
|
|
|
At end of period
|
|
$
|
40,000
|
|
|
$
|
16,760
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
4,370
|
|
|
$
|
11,750
|
|
|
Cash paid for taxes, net of refunds
|
|
$
|
440
|
|
|
$
|
910
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited—dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Common Stock Warrants
|
|
Paid-in Capital
|
|
Treasury Stock
|
|
Accumulated Deficit
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Total Horizon Global Shareholders' Equity (Deficit)
|
|
Noncontrolling Interest
|
|
Total Shareholders' Equity (Deficit)
|
|
Balance at January 1, 2020
|
|
$
|
250
|
|
|
$
|
10,610
|
|
|
$
|
163,240
|
|
|
$
|
(10,000)
|
|
|
$
|
(141,970)
|
|
|
$
|
(9,790)
|
|
|
$
|
12,340
|
|
|
$
|
(3,740)
|
|
|
$
|
8,600
|
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,740)
|
|
|
—
|
|
|
(16,740)
|
|
|
(290)
|
|
|
(17,030)
|
|
|
Other comprehensive loss, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,340)
|
|
|
(4,340)
|
|
|
—
|
|
|
(4,340)
|
|
|
Shares surrendered upon vesting of employees share based payment awards to cover tax obligations
|
|
—
|
|
|
—
|
|
|
(60)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(60)
|
|
|
—
|
|
|
(60)
|
|
|
Non-cash compensation expense
|
|
—
|
|
|
—
|
|
|
420
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
420
|
|
|
—
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2020
|
|
250
|
|
|
10,610
|
|
|
163,600
|
|
|
(10,000)
|
|
|
(158,710)
|
|
|
(14,130)
|
|
|
(8,380)
|
|
|
(4,030)
|
|
|
(12,410)
|
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,340)
|
|
|
—
|
|
|
(16,340)
|
|
|
(380)
|
|
|
(16,720)
|
|
|
Other comprehensive income, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,040
|
|
|
2,040
|
|
|
—
|
|
|
2,040
|
|
|
Shares surrendered upon vesting of employees share based payment awards to cover tax obligations
|
|
—
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|
50
|
|
|
Non-cash compensation expense
|
|
—
|
|
|
—
|
|
|
900
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
900
|
|
|
—
|
|
|
900
|
|
|
Balances at June 30, 2020
|
|
$
|
250
|
|
|
$
|
10,610
|
|
|
$
|
164,550
|
|
|
$
|
(10,000)
|
|
|
$
|
(175,050)
|
|
|
$
|
(12,090)
|
|
|
$
|
(21,730)
|
|
|
$
|
(4,410)
|
|
|
$
|
(26,140)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Common Stock Warrants
|
|
Paid-in Capital
|
|
Treasury Stock
|
|
Accumulated Deficit
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Total Horizon Global Shareholders' Equity (Deficit)
|
|
Noncontrolling Interest
|
|
Total Shareholders' Equity (Deficit)
|
|
Balances at January 1, 2019
|
|
$
|
250
|
|
|
$
|
—
|
|
|
$
|
160,990
|
|
|
$
|
(10,000)
|
|
|
$
|
(222,720)
|
|
|
$
|
7,760
|
|
|
$
|
(63,720)
|
|
|
$
|
(2,500)
|
|
|
$
|
(66,220)
|
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25,100)
|
|
|
—
|
|
|
(25,100)
|
|
|
(520)
|
|
|
(25,620)
|
|
|
Other comprehensive income, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
140
|
|
|
140
|
|
|
—
|
|
|
140
|
|
|
Shares surrendered upon vesting of employees share based payment awards to cover tax obligations
|
|
—
|
|
|
—
|
|
|
(10)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10)
|
|
|
—
|
|
|
(10)
|
|
|
Non-cash compensation expense
|
|
—
|
|
|
—
|
|
|
350
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
350
|
|
|
—
|
|
|
350
|
|
|
Issuance of Warrants
|
|
—
|
|
|
5,380
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,380
|
|
|
—
|
|
|
5,380
|
|
|
Balances at March 31, 2019
|
|
250
|
|
|
5,380
|
|
|
161,330
|
|
|
(10,000)
|
|
|
(247,820)
|
|
|
7,900
|
|
|
(82,960)
|
|
|
(3,020)
|
|
|
(85,980)
|
|
|
Net Loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,080)
|
|
|
—
|
|
|
(8,080)
|
|
|
(60)
|
|
|
(8,140)
|
|
|
Other comprehensive loss, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(130)
|
|
|
(130)
|
|
|
—
|
|
|
(130)
|
|
|
Non-cash compensation expense
|
|
—
|
|
|
—
|
|
|
590
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
590
|
|
|
—
|
|
|
590
|
|
|
Issuance of Warrants
|
|
—
|
|
|
5,340
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,340
|
|
|
—
|
|
|
5,340
|
|
|
Balance at June 30, 2019
|
|
250
|
|
|
10,720
|
|
|
161,920
|
|
|
(10,000)
|
|
|
(255,900)
|
|
|
7,770
|
|
|
(85,240)
|
|
|
(3,080)
|
|
|
(88,320)
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
1. Nature of Operations and Basis of Presentation
Horizon Global Corporation and its consolidated subsidiaries (“Horizon,” “Horizon Global,” “we,” or the “Company”) are a global designer, manufacturer and distributor of a wide variety of high quality, custom-engineered towing, trailering, cargo management and other related accessories. These products are designed to support original equipment manufacturers (“OEMs”) and original equipment servicers (“OESs”) (collectively, “OEs”), aftermarket and retail customers within the agricultural, automotive, construction, horse/livestock, industrial, marine, military, recreational, trailer and utility markets. The Company groups its business into operating segments by the region in which sales and manufacturing efforts are focused. As a result of the Company’s sale of its Horizon Asia-Pacific operating segment (“APAC”) in 2019, the Company’s operating segments are Horizon Americas and Horizon Europe-Africa. See Note 17, Segment Information, for further information on each of the Company’s operating segments. Historical information has been retrospectively adjusted to reflect the classification of APAC as discontinued operations. Discontinued operations are further discussed in Note 3, Discontinued Operations.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the US Securities and Exchange Commission (the “SEC”) for interim financial information and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“US GAAP”) for complete financial statements. It is management’s opinion that these financial statements contain all adjustments, including adjustments of a normal and recurring nature, necessary for a fair presentation of financial position and results of operations. Results of operations for interim periods are not necessarily indicative of results for the full year.
US GAAP requires us to make certain estimates, judgments, and assumptions. Management believes that the estimates, judgments, and assumptions made when accounting for items and matters such as, but not limited to, the allowance for doubtful accounts, sales incentives, sales returns, impairment assessments, recoverability of long-lived assets, income taxes (including deferred taxes and uncertain tax positions), share-based compensation, the assessment of lower of cost or net realizable value on inventory, useful lives assigned to long-lived assets, and depreciation and amortization, are reasonable based on information available at the time they are made.
The full extent and impact of the coronavirus (“COVID-19”) pandemic remains unknown. However, we have made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be materially affected.
2. New Accounting Pronouncements
New accounting pronouncements not yet adopted
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides temporary optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The relief provided by this guidance is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform initiatives being undertaken in an effort to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The optional amendments of this guidance are effective for all entities upon adoption. We are currently assessing the impact of this update on the Company’s condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 replaces the current incurred loss model guidance with a new method that reflects expected credit losses. Under this guidance, an entity would recognize an impairment allowance equal to its estimate of expected credit losses on financial assets measured at amortized cost. In November 2019, the FASB extended the effective date of ASU 2016-13 for smaller reporting companies. As a result, ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2022, with early adoption permitted. The standard is not expected to have a significant impact on the Company's condensed consolidated financial statements.
3. Discontinued Operations
On September 19, 2019, the Company completed the sale of its subsidiaries that comprised APAC to Hayman Pacific BidCo Pty Ltd., an affiliate of Pacific Equity Partners, for $209.6 million in net cash proceeds after payment of transaction costs, in a net debt free sale. The sale resulted in the recognition of a gain of $180.5 million, of which $17.3 million was related to the cumulative translation adjustment that was reclassified to earnings, which is reflected within the income from discontinued operations, net of income taxes line of the consolidated statement of operations for the year ended December 31, 2019, refer to Note 4, Discontinued Operations, in our Annual Report on Form 10-K for the year ended December 31, 2019.
In the first quarter of 2020, the remaining post-closing conditions of the sale were completed, including a true up to net cash proceeds, for which we recognized a loss on sale of discontinued operations of $0.5 million.
The following table presents the Company’s results from discontinued operations for the three and six months ended June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Net sales
|
|
|
|
$
|
30,540
|
|
|
$
|
62,550
|
|
|
Cost of sales
|
|
|
|
(22,790)
|
|
|
(46,280)
|
|
|
Selling, general and administrative expenses
|
|
|
|
(3,370)
|
|
|
(6,530)
|
|
|
Net gain on dispositions of property and equipment
|
|
|
|
(10)
|
|
|
—
|
|
|
Other expense, net
|
|
|
|
(50)
|
|
|
(190)
|
|
|
Interest expense
|
|
|
|
(130)
|
|
|
(230)
|
|
|
Income before income tax expense
|
|
|
|
4,190
|
|
|
9,320
|
|
|
Income tax expense
|
|
|
|
(1,200)
|
|
|
(2,550)
|
|
|
Income from discontinued operations, net of tax
|
|
|
|
$
|
2,990
|
|
|
$
|
6,770
|
|
4. Revenues
Revenue Recognition
The Company disaggregates revenue from contracts with customers by major sales channel. The Company determined that disaggregating revenue into these categories best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The automotive OEM channel represents sales to automotive vehicle manufacturers. The automotive OES channel primarily represents sales to automotive vehicle dealerships. The aftermarket channel represents sales to automotive installers and warehouse distributors. The retail channel represents sales to direct-to-consumer retailers. The industrial channel represents sales to non-automotive manufacturers and dealers of agricultural equipment, trailers, and other custom assemblies. The e-commerce channel represents sales to direct-to-consumer retailers who utilize the Internet to purchase the Company’s products. The other channel represents sales that do not fit into a category described above and these sales are considered ancillary to the Company’s core operating activities.
The following tables present the Company’s net sales by segments and disaggregated by major sales channel for the three and six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
|
|
|
|
Horizon Americas
|
|
Horizon Europe-Africa
|
|
Total
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
Automotive OEM
|
|
$
|
9,510
|
|
|
$
|
20,620
|
|
|
$
|
30,130
|
|
|
Automotive OES
|
|
1,080
|
|
|
7,720
|
|
|
8,800
|
|
|
Aftermarket
|
|
22,280
|
|
|
16,680
|
|
|
38,960
|
|
|
Retail
|
|
22,830
|
|
|
—
|
|
|
22,830
|
|
|
Industrial
|
|
5,040
|
|
|
340
|
|
|
5,380
|
|
|
E-commerce
|
|
13,370
|
|
|
230
|
|
|
13,600
|
|
|
Other
|
|
10
|
|
|
780
|
|
|
790
|
|
|
Total
|
|
$
|
74,120
|
|
|
$
|
46,370
|
|
|
$
|
120,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
|
|
Horizon Americas
|
|
Horizon
Europe-Africa
|
|
Total
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
Automotive OEM
|
|
$
|
23,680
|
|
|
$
|
45,780
|
|
|
$
|
69,460
|
|
|
Automotive OES
|
|
1,810
|
|
|
16,040
|
|
|
17,850
|
|
|
Aftermarket
|
|
28,840
|
|
|
20,070
|
|
|
48,910
|
|
|
Retail
|
|
33,200
|
|
|
—
|
|
|
33,200
|
|
|
Industrial
|
|
6,930
|
|
|
860
|
|
|
7,790
|
|
|
E-commerce
|
|
14,470
|
|
|
560
|
|
|
15,030
|
|
|
Other
|
|
20
|
|
|
390
|
|
|
410
|
|
|
Total
|
|
$
|
108,950
|
|
|
$
|
83,700
|
|
|
$
|
192,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
Horizon Americas
|
|
Horizon Europe-Africa
|
|
Total
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
Automotive OEM
|
|
$
|
29,870
|
|
|
$
|
62,020
|
|
|
$
|
91,890
|
|
|
Automotive OES
|
|
2,350
|
|
|
20,180
|
|
|
22,530
|
|
|
Aftermarket
|
|
49,050
|
|
|
32,390
|
|
|
81,440
|
|
|
Retail
|
|
46,400
|
|
|
—
|
|
|
46,400
|
|
|
Industrial
|
|
12,890
|
|
|
660
|
|
|
13,550
|
|
|
E-commerce
|
|
25,880
|
|
|
660
|
|
|
26,540
|
|
|
Other
|
|
50
|
|
|
1,340
|
|
|
1,390
|
|
|
Total
|
|
$
|
166,490
|
|
|
$
|
117,250
|
|
|
$
|
283,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
Horizon Americas
|
|
Horizon Europe-Africa
|
|
Total
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
Automotive OEM
|
|
$
|
43,920
|
|
|
$
|
94,700
|
|
|
$
|
138,620
|
|
|
Automotive OES
|
|
3,420
|
|
|
29,330
|
|
|
32,750
|
|
|
Aftermarket
|
|
52,990
|
|
|
36,360
|
|
|
89,350
|
|
|
Retail
|
|
61,630
|
|
|
—
|
|
|
61,630
|
|
|
Industrial
|
|
16,210
|
|
|
1,560
|
|
|
17,770
|
|
|
E-commerce
|
|
26,260
|
|
|
1,090
|
|
|
27,350
|
|
|
Other
|
|
20
|
|
|
2,830
|
|
|
2,850
|
|
|
Total
|
|
$
|
204,450
|
|
|
$
|
165,870
|
|
|
$
|
370,320
|
|
During the three and six months ended June 30, 2020 and 2019, adjustments to estimates of variable consideration for previously recognized revenue were immaterial. As of June 30, 2020 and 2019, total opening and closing balances of contract assets and deferred revenue were immaterial.
5. Goodwill and Other Intangible Assets
During the six months June 30, 2020, the Company experienced a decline in its current and projected future operating and financial performance as well as pressure on its near-term financial forecasts as a result of the COVID-19 pandemic and the related wide-ranging actions taken by international, federal, state, and local public health and governmental authorities to combat the pandemic and spread of COVID-19 in regions across the United States and the world. These actions include quarantines, social distancing and “stay-at-home” orders, travel restrictions, mandatory business closures, and other mandates that have substantially restricted individuals’ daily activities and curtailed or ceased many businesses’ normal operations. In response to the pandemic and these actions, we had adhered to geographical government shutdowns and operating restrictions for our facilities, which resulted in an adverse impact to our business and financial performance in the first half of 2020, as well as on our near-term projected financial performance. Due to the impact of the COVID-19 pandemic, the Company identified an indicator of impairment on its goodwill and indefinite-lived intangible assets in its Horizon Americas reporting unit and on its indefinite-lived intangible assets in its Horizon Europe-Africa reporting unit in the first quarter of 2020.
As a result of the indicator, the Company performed an interim quantitative impairment assessment of the goodwill recorded for the Horizon Americas reporting unit as of March 31, 2020, by considering the market and income approaches. The results of the quantitative analysis performed indicated the fair value of the reporting unit exceeded the carrying value. Key assumptions used in the analysis were a discount rate of 14.0%, Adjusted EBITDA (as defined below) margin and a terminal growth rate of 3.0%. The primary driver in the reduction of the fair value of the reporting unit was a reduction of expected future cash flows during the remainder of 2020 as the full impact of the COVID-19 pandemic remains uncertain. Future events and changing market conditions, including operating restrictions may, however, lead the Company to re-evaluate the assumptions that have been used to test for goodwill impairment, including key assumptions used in the expected Adjusted EBITDA margins, cash flows and discount rate, as well as other assumptions with respect to matters outside of the Company’s control, such as currency rates and the aforementioned geographical government shutdowns and operating restrictions.
Adjusted EBITDA is defined as net income attributable to Horizon Global before interest expense, income taxes, depreciation and amortization, and before certain items, as applicable, such as severance, restructuring, relocation and related business disruption costs, impairment of goodwill and other intangibles, non-cash stock compensation, certain product liability recall and litigation claims, acquisition and integration costs, gains (losses) on business divestitures and other assets, board transition support and non-cash unrealized foreign currency remeasurement costs.
In addition, as a result of the indicator of impairment identified, the Company performed an interim impairment assessment of its indefinite-lived intangible assets as of March 31, 2020 in the Horizon Americas and Horizon Europe-Africa operating segments. Based on the results of our analyses, the estimated fair values of the trade names exceeded the carrying values. Key assumptions used in the analyses were a discount rate of 14.5% and royalty rates ranging from 0.5% to 1.9%.
The Company will continues to assess the impact of the COVID-19 pandemic on its business and financial performance and any other indicators of potential impairment. During the three months ended June 30, 2020, our operations began to stabilize in response to customer demand, as the jurisdictions where we conduct operations began to reduce business operating restrictions. However, it is possible that if the jurisdictions where the Company does business, or those of its customers, experience additional or future operating restrictions, a decline in results may become more than temporary, and future indicators of impairment may be identified. This may result in a future interim impairment analysis being necessary, which could result in a future impairment of goodwill, indefinite-lived intangible assets or other long-lived assets.
Changes in the carrying amount of goodwill for the six months ended June 30, 2020 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
Horizon Europe-Africa
|
|
Total
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Balance at December 31, 2019
|
|
$
|
4,350
|
|
|
$
|
—
|
|
|
$
|
4,350
|
|
|
Foreign currency translation
|
|
(1,150)
|
|
|
—
|
|
|
(1,150)
|
|
|
Balance at June 30, 2020
|
|
$
|
3,200
|
|
|
$
|
—
|
|
|
$
|
3,200
|
|
The gross carrying amounts and accumulated amortization of the Company’s other intangible assets are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
June 30, 2020
|
|
|
|
|
|
Intangible Category by Useful Life
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
Customer relationships (2 – 20 years)
|
|
$
|
163,210
|
|
|
$
|
(131,530)
|
|
|
$
|
31,680
|
|
|
Technology and other (3 – 15 years)
|
|
21,740
|
|
|
(17,910)
|
|
|
3,830
|
|
|
Trademark/Trade names (1 – 8 years)
|
|
150
|
|
|
(150)
|
|
|
—
|
|
|
Total finite-lived intangible assets
|
|
185,100
|
|
|
(149,590)
|
|
|
35,510
|
|
|
Trademark/Trade names, indefinite-lived
|
|
20,940
|
|
|
—
|
|
|
20,940
|
|
|
Total other intangible assets
|
|
$
|
206,040
|
|
|
$
|
(149,590)
|
|
|
$
|
56,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2019
|
|
|
|
|
|
Intangible Category by Useful Life
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
Customer relationships (2 – 20 years)
|
|
$
|
164,150
|
|
|
$
|
(129,310)
|
|
|
$
|
34,840
|
|
|
Technology and other (3 – 15 years)
|
|
21,420
|
|
|
(17,260)
|
|
|
4,160
|
|
|
Trademark/Trade names (1 – 8 years)
|
|
150
|
|
|
(150)
|
|
|
—
|
|
|
Total finite-lived intangible assets
|
|
185,720
|
|
|
(146,720)
|
|
|
39,000
|
|
|
Trademark/Trade names, indefinite-lived
|
|
21,120
|
|
|
—
|
|
|
21,120
|
|
|
Total other intangible assets
|
|
$
|
206,840
|
|
|
$
|
(146,720)
|
|
|
$
|
60,120
|
|
On March 1, 2019, the Company entered into an agreement of sale of certain business assets in its Europe-Africa operating segment, via a share and asset sale (the “Sale”). Under the terms of the Sale, effective March 1, 2019, the Company disposed of certain non-automotive business assets that operated using the Terwa brand for $5.5 million, which included a $0.5 million note receivable. The Sale resulted in a $3.6 million loss recorded in other expense, net in the condensed consolidated statements of operations, including a $3.0 million reduction of net intangibles related to customer relationships.
Amortization expense related to intangible assets as included in the accompanying condensed consolidated statements of operations is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
Technology and other, included in cost of sales
|
|
$
|
550
|
|
|
$
|
280
|
|
|
$
|
670
|
|
|
$
|
720
|
|
|
Customer relationships and Trademark/Trade names, included in selling, general and administrative expenses
|
|
1,310
|
|
|
950
|
|
|
2,760
|
|
|
2,410
|
|
|
Total amortization expense
|
|
$
|
1,860
|
|
|
$
|
1,230
|
|
|
$
|
3,430
|
|
|
$
|
3,130
|
|
6. Inventories
Inventories consist of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
(dollars in thousands)
|
|
|
|
Finished goods
|
|
$
|
62,200
|
|
|
$
|
82,080
|
|
|
Work in process
|
|
11,970
|
|
|
12,820
|
|
|
Raw materials
|
|
42,050
|
|
|
41,750
|
|
|
Total inventories
|
|
$
|
116,220
|
|
|
$
|
136,650
|
|
7. Property and Equipment, Net
Property and equipment, net consists of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
(dollars in thousands)
|
|
|
|
Land and land improvements
|
|
$
|
470
|
|
|
$
|
470
|
|
|
Buildings
|
|
20,960
|
|
|
21,290
|
|
|
Machinery and equipment
|
|
124,940
|
|
|
121,740
|
|
|
|
|
146,370
|
|
|
143,500
|
|
|
Accumulated depreciation
|
|
(73,110)
|
|
|
(67,670)
|
|
|
Property and equipment, net
|
|
$
|
73,260
|
|
|
$
|
75,830
|
|
Depreciation expense included in the accompanying condensed consolidated statements of operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
Depreciation expense, included in cost of sales
|
|
$
|
3,260
|
|
|
$
|
3,560
|
|
|
$
|
6,410
|
|
|
$
|
6,590
|
|
|
Depreciation expense, included in selling, general and administrative expenses
|
|
350
|
|
|
520
|
|
|
690
|
|
|
800
|
|
|
Total depreciation expense
|
|
$
|
3,610
|
|
|
$
|
4,080
|
|
|
$
|
7,100
|
|
|
$
|
7,390
|
|
8. Accrued and Other Long-term Liabilities
Accrued liabilities consist of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
(dollars in thousands)
|
|
|
|
Customer incentives
|
|
$
|
16,050
|
|
|
$
|
14,270
|
|
|
Accrued compensation
|
|
8,920
|
|
|
6,760
|
|
|
Customer claims
|
|
3,990
|
|
|
7,540
|
|
|
Short-term tax liabilities
|
|
3,110
|
|
|
90
|
|
|
Accrued professional services
|
|
2,560
|
|
|
4,790
|
|
|
Restructuring
|
|
1,400
|
|
|
2,340
|
|
|
Deferred purchase price
|
|
580
|
|
|
790
|
|
|
Other
|
|
14,280
|
|
|
12,270
|
|
|
Total accrued liabilities
|
|
50,890
|
|
|
$
|
48,850
|
|
Other long-term liabilities consist of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Deferred purchase price
|
|
$
|
1,700
|
|
|
$
|
2,370
|
|
|
Restructuring
|
|
1,340
|
|
|
1,600
|
|
|
Long-term tax liabilities
|
|
340
|
|
|
340
|
|
|
Other
|
|
12,400
|
|
|
9,480
|
|
|
Total other long-term liabilities
|
|
$
|
15,780
|
|
|
$
|
13,790
|
|
9. Long-term Debt
The Company’s long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
(dollars in thousands)
|
|
|
|
Revolving Credit Facility
|
|
$
|
37,810
|
|
|
$
|
—
|
|
|
ABL Facility
|
|
—
|
|
|
20,020
|
|
|
First Lien Term Loan
|
|
25,530
|
|
|
25,210
|
|
|
Second Lien Term Loan
|
|
59,330
|
|
|
56,960
|
|
|
Convertible Notes
|
|
125,000
|
|
|
125,000
|
|
|
Paycheck Protection Program Loan
|
|
8,670
|
|
|
—
|
|
|
Bank facilities, capital leases and other long-term debt
|
|
19,010
|
|
|
13,670
|
|
|
Gross debt
|
|
275,350
|
|
|
240,860
|
|
|
Less:
|
|
|
|
|
|
Current maturities, long-term debt
|
|
10,060
|
|
|
4,310
|
|
|
Gross long-term debt
|
|
265,290
|
|
|
236,550
|
|
|
Less:
|
|
|
|
|
|
Unamortized debt issuance costs and original issuance discount on First Lien Term Loan
|
|
480
|
|
|
700
|
|
|
Unamortized debt issuance costs and discount on Second Lien Term Loan
|
|
10,080
|
|
|
12,730
|
|
|
Unamortized debt issuance costs and discount on Convertible Notes
|
|
14,770
|
|
|
18,070
|
|
|
Unamortized debt issuance costs and discount
|
|
25,330
|
|
|
31,500
|
|
|
Long-term debt
|
|
$
|
239,960
|
|
|
$
|
205,050
|
|
ABL Facility
On December 22, 2015, the Company entered into an Amended and Restated Loan Agreement among the Company, Horizon Global Americas Inc. (“HGA”), Cequent UK Limited, Cequent Towing Products of Canada Ltd. (“Cequent Towing”), certain other subsidiaries of the Company party thereto as guarantors, the lenders party thereto and Bank of America, N.A., as agent for the lenders (the “ABL Loan Agreement”), under which the lenders party thereto agreed to provide the Company and certain of its subsidiaries with a committed asset-based revolving credit facility (the “ABL Facility”) providing for revolving loans up to an aggregate principal amount of $99.0 million.
The ABL Facility consisted of (i) a US sub-facility, in an aggregate principal amount of up to $85.0 million (subject to availability under a US-specific borrowing base), (ii) a Canadian sub-facility, in an aggregate principal amount of up to $2.0 million (subject to availability under a Canadian-specific borrowing base), and (iii) a UK sub-facility in an aggregate principal amount of up to $3.0 million (subject to availability under a UK-specific borrowing base).
In March 2020, the Company paid in full all outstanding debt incurred under the ABL Facility, which the Company accounted for as a debt extinguishment in accordance with guidance in Accounting Standards Codification (“ASC”) 405-20, “Extinguishment of Liabilities”. As a result of the debt extinguishment, the Company recorded $0.8 million of unamortized debt issuance costs in interest expense included in the accompanying condensed consolidated statement of operations during the six months ended June 30, 2020 in accordance with ASC 470-50, “Modifications and Extinguishments” (“ASC 470-50”). In addition, the Company recorded $0.6 million of additional costs in selling, general and administrative expenses included in the accompanying condensed consolidated statement of operations during the six months ended June 30, 2020.
The Company recognized no amortization of debt issuance costs and $0.4 million of amortization of debt issuance costs during the three and six months ended June 30, 2020, respectively, and $0.4 million and $0.5 million of amortization of debt issuance costs during the three and six months ended June 30, 2019, respectively, which are included in the accompanying condensed consolidated statements of operations.
Total letters of credit issued and outstanding under the ABL Facility were $1.2 million and $7.7 million at June 30, 2020 and December 31, 2019, respectively. The letters of credit were collateralized with a line block on the ABL Facility. As described below, as the ABL Facility was extinguished, the agreement governing the ABL Facility required cash collateral to be held until expiration of outstanding letters of credit arrangement. The cash collateral requirement is 105% of the outstanding letters of credit, for a total amount of $1.2 million as of June 30, 2020. The cash collateral will be released either because of expiration or early termination and reissuance of the letters of credit. Certain letters of credit were reissued under the Revolving Credit Facility, as defined below, with a total of $3.5 million issued and outstanding as of June 30, 2020, with no cash collateral requirement. Other letters of credit were reissued under the Revolving Credit Facility, with a cash collateral requirement, with total of $3.7 million as of June 30, 2020. The cash collateral requirement is 105% of the outstanding letters of credit, for a total amount of $4.0 million as of June 30, 2020. The Company presented the cash collateral in restricted cash in the accompanying June 30, 2020 condensed consolidated balance sheet.
Revolving Credit Facility
In March 2020, the Company, as guarantor, entered into a Loan and Security Agreement (the “Loan Agreement”) with Encina Business Credit, LLC (“Encina”), as agent for the lenders party thereto, and HGA and Cequent Towing, as borrowers (the “ABL Borrowers”). The Loan Agreement provides for an asset-based revolving credit facility (the “Revolving Credit Facility”) in the maximum aggregate principal amount of $75.0 million subject to customary borrowing base limitations contained therein, and may be increased at the ABL Borrowers’ request in increments of $5.0 million, up to a maximum of five times over the life of the Revolving Credit Facility, for a total increase of up to $25.0 million.
The interest on the loans under the Loan Agreement will be payable in cash at the interest rate of LIBOR plus 4.00% per annum, subject to a 1.00% LIBOR floor, provided that if for any reason the loans are converted to base rate loans, interest will be paid in cash at the customary base rate plus a margin of 3.00% per annum. All interest, fees, and other monetary obligations due may, in Encina’s discretion but upon prior notice to the ABL Borrowers, be charged to the loan account and thereafter be deemed to be part of the Revolving Credit Facility subject to the same interest rate. There are no amortization payments required under the Loan Agreement. Borrowings under the Loan Agreement mature on the earlier of: (i) March 13, 2023 and (ii) 90 days prior to the maturity of any portion of the debt under the Company’s First Lien Term Loan or Second Lien Term Loan, as may be in effect from time to time, unless earlier terminated. Based on the maturity dates of the Company’s First Lien Term Loan and Second Lien Term Loan, the loans under the Loan Agreement would be due on March 31, 2021. As a result of the 2020 Replacement Term Loan Amendment, as described in Note 20, Subsequent Events, the maturity of all borrowings under the Revolving Credit Facility were effectively extended to fiscal year 2022 and are presented in gross long-term debt in the accompanying condensed consolidated balance sheet as of June 30, 2020. All of the indebtedness under the Loan Agreement is and will be guaranteed by the Company and certain of the Company’s existing and future North American subsidiaries and is and will be secured by substantially all of the assets of the Company, such other guarantors, and the ABL Borrowers.
The Loan Agreement also contains a financial covenant that stipulates the ABL Borrowers and guarantors under the Loan Agreement will not make Capital Expenditures (as defined in the Loan Agreement) exceeding $30.0 million during any fiscal year.
Debt issuance costs of $2.3 million were incurred in connection with the entry into the Loan Agreement. These debt issuance costs will be amortized into interest expense over the contractual term of the Loan Agreement. The Company recognized $0.5 million and $0.7 million of amortization of debt issuance costs during the three and six months ended June 30, 2020, respectively, which are included in the accompanying condensed consolidated statement of operations. There were $1.6 million of unamortized debt issuance costs included in prepaid expenses and other current assets in the accompanying June 30, 2020 condensed consolidated balance sheet.
There was $37.8 million outstanding under the Revolving Credit Facility as of June 30, 2020 and $20.0 million outstanding under the ABL Facility as of December 31, 2019, with a weighted average interest rate of 5.0% and 5.5%, respectively. The Company had $11.3 million of availability under the Revolving Credit Facility as of June 30, 2020 and $33.1 million of availability under the ABL Facility as of December 31, 2019.
First Lien Term Loan Agreement
On June 30, 2015, the Company entered into a credit agreement among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A. (the “Term Loan Agreement”) under which the Company borrowed an aggregate of $200.0 million (the “Original Term B Loan”), which matures on June 30, 2021. The Term Loan Agreement has been subsequently amended and restated on several occasions and is collectively referred to as the “First Lien Term Loan Agreement”. The Original Term B
Loan has also been subsequently amended on several occasions and is collectively referred to as the “First Lien Term Loan”. In conjunction with the entry into the Revolving Credit Facility referenced above, Cortland Capital Markets Services LLC is now serving as administrative agent and collateral agent for the First Lien Term Loan.
In March 2020, the Company entered into the ninth amendment to credit agreement (the “Ninth Term Amendment”) to amend the First Lien Term Loan Agreement. The Ninth Term Amendment removed the minimum liquidity covenant of $15.0 million, amended the net leverage ratio requirements to remove the December 31, 2020 leverage ratio test, amended the fixed charge coverage ratio covenant to not be below 1.0 to 1.0 beginning with the fiscal quarter ending March 31, 2021, and replaced the prior first lien leverage covenant with a secured net leverage ratio starting with the fiscal quarter ending March 31, 2021 as follows:
•March 31, 2021: 6.00 to 1.00
•June 30, 2021 and each fiscal quarter ending thereafter: 5.00 to 1.00
In May 2020, the Company entered into an amendment, limited waiver and consent to credit agreement (the “Tenth Term Amendment”) with an effective date of April 1, 2020, to amend the First Lien Term Loan Agreement and to consent to the Company’s entering into, among other things, the PPP Loan and French Loan, each as defined and described below. The Tenth Term Amendment amended the fixed coverage ratio covenant to eliminate the March 31, 2021 testing period, amended the secured net leverage ratio covenant to eliminate the March 31, 2021 testing period, and amended the secured net leverage ratio covenant levels as follows:
•June 30, 2021: 6.00 to 1.00
•September 30, 2021 and each fiscal quarter ending thereafter: 5.00 to 1.00
The Company recognized $0.5 million and $3.5 million of unamortized debt issuance costs in interest expense included in the accompanying condensed consolidated statement of operations during the three and six months ended June 30, 2019, respectively, due to the extinguishment of debt for certain lenders in the loan syndicate in connection with the Sixth, Seventh and Eighth Term Amendments to the First Lien Term Loan Agreement.
The Company recognized $0.1 million and $0.2 million of amortization of debt issuance and discount cost for the three and six months ended June 30, 2020, respectively, and $1.2 million and $2.0 million for the three and six months ended June 30, 2019, respectively, which is included in the accompanying condensed consolidated statements of operations.
The Company recognized $0.2 million and $0.4 million of paid-in-kind interest on the First Lien Term Loan for the three and six months ended June 30, 2020, respectively, and $1.9 million for both the three and six months ended June 30, 2019. The Company had an aggregate principal amount outstanding of $25.5 million and $25.2 million as of June 30, 2020 and December 31, 2019, respectively, under the First Lien Term Loan bearing cash interest at 7.0% and 8.1%, respectively. In addition to the cash interest, the First Lien Term loan has 3.0% paid-in-kind interest.
All of the indebtedness under the First Lien Term Loan is and will be guaranteed by the Company’s existing and future material domestic subsidiaries and is and will be secured by substantially all of the assets of the Company and such guarantors.
Second Lien Term Loan Agreement
In March 2019, the Company entered into a credit agreement (the “Second Lien Term Loan Agreement”) with Cortland Capital Markets Services LLC, as administrative agent and collateral agent, and Corre Partners Management L.L.C., as representative of the lenders, and the lenders party thereto. The Second Lien Term Loan Agreement provides for a term loan facility in the aggregate principal amount of $51.0 million and matures on September 30, 2021. The interest on the Second Lien Term Loan may be paid, at the Company’s election, in cash, at the customary eurocurrency rate plus a margin of 10.50% per annum, or in-kind, at the customary eurocurrency rate plus a margin of 11.50%. The Second Lien Term Loan Agreement is secured by a second lien on substantially the same collateral as the First Lien Term Loan and is subject to various affirmative and negative covenants including a secured net leverage ratio tested quarterly.
In March 2020, the Company entered into the second amendment to credit agreement (the “Second Lien Second Amendment”) to amend the Second Lien Term Loan Agreement. The Second Lien Second Amendment amended certain financial covenants as outlined in the above section, First Lien Term Loan.
In May 2020, the Company entered into an amendment, limited waiver and consent to credit agreement (the “Second Lien Third Amendment”), with an effective date of April 1, 2020, to amend the Second Lien Term Loan Agreement and to consent to the Company’s entering into, among other things, the PPP Loan and French Loan, each as defined and described below. The Second Lien Third Amendment amended certain financial covenants as outlined in the above section, First Lien Term Loan.
Debt issuance costs of $3.8 million and original issuance discount of $1.0 million were incurred in connection with entry into the Second Lien Term Loan Agreement. The debt issuance and original issuance discount costs will be amortized into interest expense over the contractual term of the loan using the effective interest method.
The Company recognized $1.4 million and $2.7 million of amortization of debt issuance and discount cost for the three and six months ended June 30, 2020, respectively, and $0.8 million for both the three and six months ended June 30, 2019, which is included in the accompanying condensed consolidated statements of operations.
The Company had total unamortized debt issuance and discount costs of $10.1 million, all of which are recorded as a reduction of the debt balance on the Company’s accompanying condensed consolidated balance sheet as of June 30, 2020. The Company recognized $1.9 million and $3.3 million of paid-in-kind interest on its Second Lien Term Loan for the three and six months ended June 30, 2020, respectively, and $2.5 million for both the three and six months ended June 30, 2019.
Convertible Notes
In February 2017, the Company completed a public offering of 2.75% Convertible Senior Notes (the “Convertible Notes”) in an aggregate principal amount of $125.0 million. Interest is payable on January 1 and July 1 of each year, beginning on July 1, 2017. The Convertible Notes are convertible into 5,005,000 shares of the Company’s common stock, based on an initial conversion price of $24.98 per share. The Convertible Notes will mature on July 1, 2022 unless earlier converted.
During the second quarter of 2020, no conditions allowing holders of the Convertible Notes to convert have been met. Therefore, the Convertible Notes were not convertible during the second quarter of 2020 and are classified as long-term debt. Should conditions allowing holders of the Convertible Notes to convert be met in a future quarter, the Convertible Notes will be convertible at their holders’ option during the immediately following quarter. As of June 30, 2020, the if-converted value of the Convertible Notes did not exceed the principal value of those Convertible Notes.
Upon conversion by the holders, the Company may elect to settle such conversion in shares of its common stock, cash, or a combination thereof. Because the Company may elect to settle conversion in cash, the Company separated the Convertible Notes into their liability and equity components by allocating the issuance proceeds to each of those components in accordance with ASC 470-20, “Debt-Debt with Conversion and Other Options.” The Company first determined the fair value of the liability component by estimating the value of a similar liability that does not have an associated equity component. The Company then deducted that amount from the issuance proceeds to arrive at a residual amount, which represents the equity component. The Company accounted for the equity component as a debt discount (with an offset to paid-in capital in excess of par value). The debt discount created by the equity component is being amortized as additional non-cash interest expense using the effective interest method over the contractual term of the Convertible Notes ending on July 1, 2022.
Paycheck Protection Program Loan
In April 2020, Horizon Global Company LLC (the “US Borrower”), a direct US-based subsidiary of the Company, received a loan from PNC Bank, National Association for $8.7 million, pursuant to the Paycheck Protection Program (the “PPP Loan”) under Division A, Title I of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The PPP Loan, which is in the form of a Note dated April 18, 2020 issued by the US Borrower, matures on April 18, 2022. The PPP Loan bears interest at 1.0% per annum and is payable monthly commencing on November 15, 2020. Funds from the PPP Loan may be used for payroll, costs used to continue group health care benefits, rent and utilities. Under the terms of the PPP Loan, certain amounts may be forgiven if they are used for qualifying expenses as described in the CARES Act.
The Company submitted its PPP Loan application in good faith in accordance with the CARES Act and the guidance issued by the Small Business Administration (the “SBA”), including the SBA’s Paycheck Protection Program Loans Frequently Asked Questions. During the second quarter of 2020, the Company, in accordance with the final guidance issued by the United States Department of the Treasury, met the need and sized based criteria of the program. The Company plans to file its application of forgiveness in the near term and continues to use the PPP Loan proceeds on qualifying expenses; however, there is no guarantee that any portion of the PPP Loan proceeds will be forgiven.
The French Loan
In April 2020, S.I.A.R.R. SAS (the “French Borrower”), an indirect subsidiary of the Company, received a loan from BNP Paribas (the “French Loan”) for $5.5 million. The French Loan, issued pursuant to an agreement dated April 9, 2020, between the French Borrower and BNP Paribas, matures on April 9, 2021. The French Loan bears interest at a rate of 0.5% per annum. The French Borrower, at its election, may repay the French Loan in full on April 9, 2021 or in monthly installments for a period of five years from the date of election.
Covenant and Liquidity Matters
As a result of the amendment entered into on July 6, 2020, as defined and described in Note 20, Subsequent Events, for the Company’s First Lien Term Loan and Second Lien Term Loan, and our current forecast through June 30, 2021, the Company believes it has sufficient liquidity to operate its business for the foreseeable future.
The Company is in compliance with all of its financial covenants in its debt agreements as of June 30, 2020.
10. Derivative Instruments
Foreign Currency Exchange Rate Risk
In the past, the Company has used foreign currency forward contracts to mitigate the risk associated with fluctuations in currency rates impacting cash flows related to certain payments for contract manufacturing in its lower-cost manufacturing facilities. The foreign currency forward contracts hedged currency exposure between the Mexican peso and the US dollar and matured at specified monthly settlement dates through December 2019. At inception, the Company designated the foreign currency forward contracts as cash flow hedges. Upon the performance of contract manufacturing or purchase of certain inventories the Company de-designated the foreign currency forward contracts.
On October 4, 2016, the Company entered into a cross currency swap arrangement to hedge changes in foreign currency exchange rates. The Company used the cross currency swap to mitigate the risk associated with fluctuations in currency rates impacting cash flows related to a non-functional currency intercompany loan of €110.0 million. The cross currency swap hedged currency exposure between the euro and the US dollar and matured on January 3, 2019 with a liability of $2.5 million. The Company entered into forward contracts to settle the cross currency swap, which resulted in a $0.9 million offset to the liability. These settlements resulted in a net realized gain reclassified from accumulated other comprehensive loss (“AOCI”) of $0.6 million. The Company made quarterly principal payments of €1.4 million, plus interest at a fixed rate of 5.4% per annum, in exchange for $1.5 million, plus interest at a fixed rate of 7.2% per annum during the term of the cross currency swap arrangement. At inception, the Company designated the cross currency swap as a cash flow hedge. Changes in the currency rate resulted in reclassification of amounts from AOCI to earnings to offset the re-measurement gain or loss on the non-US denominated intercompany loan.
There were no outstanding derivatives contracts at June 30, 2020 and December 31, 2019.
Financial Statement Presentation
The following table summarizes the amounts reclassified from AOCI into earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2019
|
|
|
|
Six Months Ended
June 30, 2019
|
|
|
|
|
|
Cost of sales
|
|
Interest expense
|
|
Cost of sales
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
Total Amounts of Expense Line Items Presented in the Statement of Operations in Which the Effects of Cash Flow Hedges are Recorded
|
|
$
|
(156,340)
|
|
|
$
|
(15,320)
|
|
|
$
|
(310,450)
|
|
|
$
|
(26,150)
|
|
|
Amount of Gain Reclassified from AOCI into Earnings
|
|
|
|
|
|
|
|
|
|
Derivatives classified as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
570
|
|
|
$
|
—
|
|
|
$
|
1,200
|
|
|
$
|
—
|
|
|
Cross currency swap
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
900
|
|
11. Restructuring
The Company’s restructuring activities are undertaken as necessary to execute management’s strategy and streamline operations, consolidate and take advantage of available capacity and resources, and ultimately achieve productivity improvements and net cost reductions. The Company's restructuring charges consist primarily of employee costs (principally severance and/or termination benefits) and facility closure and other costs.
To the extent these programs involve voluntary separations, no liabilities are generally recorded until offers to employees are accepted. If employees are involuntarily terminated, a liability is generally recorded at the communication date. Estimates of restructuring charges are based on information available at the time such charges are recorded. Related charges are recorded in cost of sales and selling, general and administrative expenses.
The following table provides a summary of the Company’s consolidated restructuring liabilities and related activity for each type of exit cost as of and for the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Costs
|
|
Facility Closure and Other Costs
|
|
|
|
Total
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2020
|
|
$
|
1,830
|
|
|
$
|
2,110
|
|
|
|
|
$
|
3,940
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments and other(1)
|
|
(1,080)
|
|
|
(120)
|
|
|
|
|
(1,200)
|
|
|
Balance at June 30, 2020
|
|
$
|
750
|
|
|
$
|
1,990
|
|
|
|
|
$
|
2,740
|
|
(1)Other consists primarily of changes in the liability balance due to foreign currency translation and finalization of facility closures.
12. Leases
On January 1, 2019, the Company adopted the new accounting guidance under ASC 842, “Leases”, as issued by the FASB under ASU 2016-02. Refer to Note 2, New Accounting Pronouncements, in our Annual Report on Form 10-K for the year ended December 31, 2019 for more information.
The Company leases certain facilities, automobiles and equipment under non-cancellable operating leases. Our leases have remaining lease terms of one year to twelve years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year. Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheets; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company’s financing leases are immaterial.
Most leases include one or more options to renew. The exercise of lease renewal options is typically at the Company’s sole discretion; therefore, the majority of renewals to extend the lease terms are not included in the Company’s right-of-use (“ROU”) assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in the lease term. The Company combines lease and non-lease components which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases.
As most of the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The Company has a centrally managed treasury function; therefore, based on the applicable lease terms and the current economic environment, the Company applies a portfolio approach by operating segment for determining the incremental borrowing rate.
The following table provides additional cost and cash flow information for the Company’s leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
3,600
|
|
|
$
|
4,450
|
|
|
$
|
7,200
|
|
|
$
|
9,000
|
|
|
Operating cash flows from operating leases
|
|
$
|
4,100
|
|
|
$
|
3,870
|
|
|
$
|
8,110
|
|
|
$
|
8,000
|
|
|
ROU assets obtained in exchange for operating lease obligations
|
|
$
|
1,010
|
|
|
$
|
14,280
|
|
|
$
|
2,580
|
|
|
$
|
14,840
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides additional balance sheet information for the Company’s leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020
|
|
As of December 31, 2019
|
|
Weighted average remaining lease term (years)
|
|
6.5
|
|
6.8
|
|
Weighted average discount rate
|
|
8.6
|
%
|
|
8.7
|
%
|
13. Contingencies
During the fourth quarter of 2018, the Company was notified by two OEM customers of potential claims related to product sold by Horizon Europe-Africa arising from potentially faulty components provided by a third-party supplier. The claims resulted from the failure of products not functioning to specifications, but the claims did not allege any damage and only sought replacement of the product. The Company performed an assessment of the facts and circumstances for all asserted and unasserted claims and considered all factors including the Company’s recall insurance. Based on this assessment through June 30, 2019, the Company recorded a $4.3 million charge for the six months ended June 30, 2019.
As of December 31, 2019, the Company had $3.9 million recorded in accrued liabilities for the remaining unpaid settlement obligations and an insurance-related asset of $0.4 million recorded in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets. In the first quarter of 2020, the Company settled its outstanding obligations related to the claim. The Company has no remaining liability or insurance-related asset.
On April 29, 2020, the Company agreed to a settlement (the “Settlement”) related to certain intellectual property infringement claims made against one of the Company’s subsidiaries in its Horizon Europe-Africa operating segment. The Company settled all historical and future associated claims for $4.4 million to be paid evenly in semi-annual installments on June 30 and December 31 of each year through December 31, 2024. As a result of the Settlement, the Company recorded a $1.5 million charge in cost of sales in the accompanying condensed consolidated statement of operations during the first quarter of 2020.
The Company recognized $0.2 million of royalties and $1.7 million in cost of sales in the accompanying condensed consolidated statement of operations for the three and six months ended June 30, 2020, respectively. As of June 30, 2020, the Company had recorded $0.8 million in prepaid expenses and other current assets and $2.0 million in other assets related to the future royalties to be recognized by the Company over the life of future programs related to the Settlement and $0.9 million in accrued liabilities and $3.1 million in other long-term liabilities in the accompanying condensed consolidated balance sheet related to the remaining semi-annual installment payments to be paid.
14. Earnings (Loss) per Share
Basic earnings (loss) per share is computed using net income (loss) attributable to Horizon Global and the number of weighted average shares outstanding. Diluted earnings (loss) per share is computed using net income (loss) attributable to Horizon Global and the number of weighted average shares outstanding, adjusted to give effect to the assumed exercise of outstanding stock options and warrants, vesting of restricted shares outstanding, and conversion of the Convertible Notes.
The following table sets forth the reconciliation of the numerator and the denominator of basic earnings (loss) per share attributable to Horizon Global and diluted earnings (loss) per share attributable to Horizon Global:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
(dollars in thousands, except share and per share data)
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(16,720)
|
|
|
$
|
(11,130)
|
|
|
$
|
(33,250)
|
|
|
$
|
(40,530)
|
|
|
Add: (Loss) income from discontinued operations, net of tax
|
|
—
|
|
|
2,990
|
|
|
(500)
|
|
|
6,770
|
|
|
Less: Net loss attributable to noncontrolling interest
|
|
(380)
|
|
|
(60)
|
|
|
(670)
|
|
|
(580)
|
|
|
Net loss attributable to Horizon Global
|
|
$
|
(16,340)
|
|
|
$
|
(8,080)
|
|
|
$
|
(33,080)
|
|
|
$
|
(33,180)
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic
|
|
25,618,793
|
|
|
25,282,791
|
|
|
25,509,794
|
|
|
25,235,704
|
|
|
Dilutive effect of stock-based awards
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Weighted average shares outstanding, diluted
|
|
25,618,793
|
|
|
25,282,791
|
|
|
25,509,794
|
|
|
25,235,704
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share attributable to Horizon Global
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.64)
|
|
|
$
|
(0.44)
|
|
|
$
|
(1.28)
|
|
|
$
|
(1.58)
|
|
|
Discontinued operations
|
|
—
|
|
|
0.12
|
|
|
(0.02)
|
|
|
0.27
|
|
|
Total
|
|
$
|
(0.64)
|
|
|
$
|
(0.32)
|
|
|
$
|
(1.30)
|
|
|
$
|
(1.31)
|
|
|
Diluted income (loss) per share attributable to Horizon Global
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.64)
|
|
|
$
|
(0.44)
|
|
|
$
|
(1.28)
|
|
|
$
|
(1.58)
|
|
|
Discontinued operations
|
|
—
|
|
|
0.12
|
|
|
(0.02)
|
|
|
0.27
|
|
|
Total
|
|
$
|
(0.64)
|
|
|
$
|
(0.32)
|
|
|
$
|
(1.30)
|
|
|
$
|
(1.31)
|
|
Due to losses from continuing operations for the three and six months ended June 30, 2020 and 2019, the effect of certain dilutive securities were excluded from the computation of weighted average diluted shares outstanding as inclusion would have resulted in anti-dilution. A summary of these anti-dilutive common stock equivalents is provided in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
Number of options
|
|
18,961
|
|
|
55,389
|
|
|
18,961
|
|
|
65,181
|
|
|
|
|
|
|
Exercise price of options
|
|
$9.20 - $11.02
|
|
$9.20 - $11.29
|
|
$9.20 - $11.02
|
|
$9.20 - $11.29
|
|
|
|
|
|
Restricted stock units
|
|
2,011,211
|
|
|
1,259,552
|
|
|
1,709,598
|
|
|
868,263
|
|
|
|
|
|
|
Convertible Notes
|
|
5,005,000
|
|
|
5,005,000
|
|
|
5,005,000
|
|
|
5,005,000
|
|
|
|
|
|
|
Convertible Notes warrants
|
|
5,005,000
|
|
|
5,005,000
|
|
|
5,005,000
|
|
|
5,005,000
|
|
|
|
|
|
|
Second Lien Term Loan warrants
|
|
6,443,910
|
|
|
3,764,113
|
|
|
6,443,910
|
|
|
2,210,855
|
|
|
|
|
|
For purposes of determining diluted earnings (loss) per share, the Company has elected a policy to assume that the principal portion of the Convertible Notes, as described in Note 9, Long-term Debt, is settled in cash and the conversion premium is settled in shares. Therefore, the Company has adopted a policy of calculating the diluted earnings (loss) per share effect of the Convertible Notes using the treasury stock method. As a result, the dilutive effect of the Convertible Notes is limited to the conversion premium, which is reflected in the calculation of diluted loss per share as if it were a freestanding written call option
on the Company’s shares. Using the treasury stock method, the Warrants issued in connection with the issuance of the Convertible Notes are considered to be dilutive when they are in the money relative to the Company’s average common stock price during the period. The Convertible Note Hedges purchased in connection with the issuance of the Convertible Notes are always considered to be anti-dilutive and therefore do not impact the Company’s calculation of diluted earnings (loss) per share.
15. Equity Awards
Description of the Plans
Horizon employees and non-employee directors participate in the Horizon Global Corporation 2015 Equity and Incentive Compensation Plan (as amended and restated, the “Horizon 2015 Plan”). The Horizon 2015 Plan authorizes the Compensation Committee of the Horizon Board of Directors to grant stock options (including “incentive stock options” as defined in Section 422 of the US Internal Revenue Code), restricted shares, restricted stock units, performance shares, performance stock units, cash incentive awards, and certain other awards based on or related to our common stock to Horizon employees and non-employee directors. No more than 4.4 million Horizon common shares may be delivered under the Horizon 2015 Plan.
On June 19, 2020, the shareholders approved the Horizon Global Corporate 2020 Equity and Incentive Compensation Plan (the “Horizon 2020 Plan”). Horizon employees and non-employee directors participate in the Horizon 2020 Plan. The Horizon 2020 Plan authorizes the Compensation Committee of the Horizon Board of Directors to grant stock options (including “incentive stock options” as defined in Section 422 of the US Internal Revenue Code), appreciation rights, restricted shares, restricted stock units, performance shares, performance stock units, cash incentive awards, dividend equivalents and certain other awards based upon terms and conditions described in the Horizon 2020 Plan. No more than 4.1 million Horizon common shares may be delivered under the Horizon 2020 Plan, plus (A) the total number of shares remaining available for awards under the Horizon 2015 Plan, as described above, as of June 19, 2020, plus (B) the shares that are subject to awards granted under the Horizon 2020 Plan or the Horizon 2015 Plan that are added (or added back, as applicable) to the aggregate number of shares available under the 2020 Horizon Plan pursuant to the share counting rules of the 2020 Horizon Plan. These shares may be shares of original issuance or treasury shares, or a combination of both.
Stock Options
The following table summarizes Horizon stock option activity from December 31, 2019 to June 30, 2020:
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Number of Stock Options
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Weighted Average Exercise Price
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Average Remaining Contractual Life (Years)
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Aggregate Intrinsic Value
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|
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Outstanding at December 31, 2019
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|
37,737
|
|
|
$
|
10.52
|
|
|
|
|
|
|
Granted
|
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—
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|
|
—
|
|
|
|
|
|
|
Exercised
|
|
—
|
|
|
—
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|
|
|
|
|
|
Canceled, forfeited
|
|
(18,776)
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|
10.61
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|
Expired
|
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—
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|
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—
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Outstanding at June 30, 2020
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|
18,961
|
|
|
$
|
10.43
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|
|
5.4
|
|
$
|
—
|
|
As of June 30, 2020, the unrecognized compensation cost related to stock options is immaterial. For the three and six months ended June 30, 2020 and 2019, the stock-based compensation expense recognized by the Company related to stock options was immaterial. There was no aggregate intrinsic value of the outstanding options at June 30, 2020. Stock-based compensation expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.
Restricted Shares
During the six months ended June 30, 2020, the Company granted an aggregate of 1,502,072 restricted stock units and performance stock units to certain key employees. The total grants consisted of: (i) 284,859 time-based restricted stock units vesting on a ratable basis on March 3, 2021, March 3, 2022 and March 3, 2023; (ii) 277,228 time-based restricted stock units vesting on June 24, 2021; (iii) 21,351 time-based restricted stock units vesting on a ratable basis on April 2, 2021, March 3, 2022 and March 3, 2023 and (iv) 918,634 performance stock units that vest on March 3, 2023 (the “2020 PSUs”).
The performance criteria for the 2020 PSUs is based on the Company’s three-year cumulative EBITDA. The grant date fair values for the performance stock units and restricted stock units granted during 2020 are based on the closing trading price of the Company’s common stock on the date of grant.
During 2019, the Company granted an aggregate of 1,950,296 restricted stock units and performance stock units to certain key employees. The total grants consisted of: (i) 353,592 time-based restricted stock units that vest on May 15, 2020; (ii) 27,840 time-based restricted stock units that vest on September 10, 2020; (iii) 245,134 time-based restricted stock units that vest on September 19, 2020; (iv) 25,000 time-based restricted stock units that vest on November 13, 2020; (v) 25,000 time-based restricted stock units that vest on December 9, 2020; (vi) 5,000 time-based restricted stock units that vest on May 15, 2021; (vii) 411,373 time-based restricted stock units that vest on March 19, 2022 and (viii) 857,357 market-based performance stock units (the “2019 PSUs”), of which 757,357 vest on March 19, 2022 with the remaining 100,000 vesting on a ratable basis on September 23, 2020, September 23, 2021 and September 23, 2022.
For the 2019 PSUs, the performance criteria for the market-based performance stock units is based on the Company’s total shareholder return (“TSR”) relative to the TSR of the common stock of a pre-defined industry peer group. TSR is measured over a period beginning January 1, 2019 and ending December 31, 2021. TSR is calculated as the Company’s average closing stock price for the 20-trading days at the end of the performance period plus Company dividends, divided by the Company’s average closing stock price for the 20-trading days prior to the start of the performance period. Depending on the performance achieved, the amount of shares earned can vary from 0% of the target award to a maximum of 200% of the target award. The Company estimated the grant-date fair value of the awards subject to a market condition using a Monte Carlo simulation model, using the following weighted-average assumptions: risk-free interest rate of 2.43% and annualized volatility of 84.1%. The grant date fair value of the performance stock units was $3.69.
The grant date fair value of restricted stock units is expensed over the vesting period. Restricted stock unit fair values are based on the closing trading price of the Company’s common stock on the date of grant. Changes in the number of restricted shares outstanding for the period ended June 30, 2020 were as follows:
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Number of Restricted Shares
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Weighted Average Grant Date Fair Value
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Outstanding at December 31, 2019
|
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1,393,085
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$
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4.30
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Granted
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1,502,072
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|
|
2.92
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Vested
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(413,141)
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|
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3.84
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|
Canceled, forfeited
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|
(357,035)
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|
|
5.27
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|
Outstanding at June 30, 2020
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2,124,981
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$
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3.25
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|
As of June 30, 2020, there was $4.9 million in unrecognized compensation costs related to unvested restricted stock units that is expected to be recognized over a weighted-average period of 2.3 years.
The Company recognized $0.9 million and $1.3 million of stock-based compensation expense related to restricted shares during the three and six months ended June 30, 2020, respectively, and $0.6 million and $1.0 million during the three and six months ended and June 30, 2019, respectively. Stock-based compensation expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.
16. Shareholders’ Equity
Preferred Stock
The Company is authorized to issue 100,000,000 shares of preferred stock, par value of $0.01 per share. There were no preferred shares outstanding as of June 30, 2020 or December 31, 2019.
Common Stock
The Company is authorized to issue 400,000,000 shares of Horizon Global common stock, par value of $0.01 per share. As of June 30, 2020, there were 26,478,135 shares of common stock issued and 25,791,629 shares of common stock outstanding. As of December 31, 2019, there were 26,073,894 shares of common stock issued and 25,387,388 shares of common stock outstanding.
Common Stock Warrants
In connection with the Second Lien Term Loan the Company entered into in March 2019, the Company became obligated to issue detachable warrants to purchase up to 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 $1.50 per share.
The Company also issued 90,667 shares of Series A Preferred Stock in March 2019 in connection with the Second Lien Term Loan that were convertible into additional warrants upon receipt of shareholder approval of the issuance of such additional warrants and the shares of common stock issuable upon exercise thereof. The Series A Preferred Stock was presented as temporary equity in the March 31, 2019 condensed consolidated balance sheet. Upon receipt of such shareholder approval on June 25, 2019, the 90,667 shares of Series A Preferred Stock were converted into warrants to purchase 2,952,248 shares of common stock. See Note 9, Long-term Debt, for additional information. As of June 30, 2020, warrants for 110,240 shares have been exercised on a net basis, resulting in the issuance of 66,476 shares of the Company’s common stock. As of June 30, 2020, warrants to purchase 6,443,910 shares of common stock were issued and remain outstanding.
Accumulated Other Comprehensive Income (Loss) (“AOCI”)
Changes in AOCI by component, net of tax, for the six months ended June 30, 2020 are summarized as follows:
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Derivative Instruments
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Foreign Currency Translation
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Total
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(dollars in thousands)
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Balances at January 1, 2020
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$
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—
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$
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(9,790)
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$
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(9,790)
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Net unrealized losses arising during the period
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—
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(2,300)
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(2,300)
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Net current-period change
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—
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|
|
(2,300)
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|
|
(2,300)
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Balances at June 30, 2020
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|
$
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—
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|
|
$
|
(12,090)
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|
|
$
|
(12,090)
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|
Changes in AOCI by component, net of tax, for the six months ended June 30, 2019 are summarized as follows:
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Derivative Instruments
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Foreign Currency Translation
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Total
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(dollars in thousands)
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Balances at January 1, 2019
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$
|
1,960
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|
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$
|
5,800
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$
|
7,760
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Net unrealized gains arising during the period(a)
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970
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1,290
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|
|
2,260
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Less: Net realized gains reclassified to net loss(a)
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|
2,250
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|
|
—
|
|
|
2,250
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|
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Net current-period change
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|
(1,280)
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|
|
1,290
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|
|
10
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Balances at June 30, 2019
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|
$
|
680
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|
|
$
|
7,090
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|
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$
|
7,770
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|
(a) There was no income tax impact for derivative instruments during the six months ended June 30, 2019. See Note 10, Derivative Instruments, for further details.
17. Segment Information
The Company groups its business into operating segments by the region in which sales and manufacturing efforts are focused, which are grouped on the basis of similar product, market and operating factors. Each operating segment has discrete financial information evaluated regularly by the Company’s chief operating decision maker in determining resource allocation and assessing performance. The Company reports the results of its business in two operating segments: Horizon Americas and Horizon Europe-Africa. Horizon Americas is comprised of the Company’s North American and South American operations. Horizon Europe-Africa is comprised of the European and South African operations. See below for further information regarding the types of products and services provided within each operating segment.
Previously, the Company had three operating segments. However, as a result of its sale in the third quarter of 2019, we have removed APAC as a separate operating segment and its results are presented as a discontinued operation in the accompanying condensed consolidated financial statements. Historical information has been retrospectively adjusted to reflect these changes. Please see Note 3, Discontinued Operations, for additional information.
Horizon Americas - A market leader in the design, manufacture and distribution of a wide variety of high-quality, custom engineered towing, trailering and cargo management products and related accessories. These products are designed to support OEMs, OESs, aftermarket and retail customers in the agricultural, automotive, construction, industrial, marine, military, recreational vehicle, trailer and utility end markets. Products include brake controllers, cargo management, heavy-duty towing products, jacks and couplers, protection/securing systems, trailer structural and electrical components, tow bars, vehicle roof racks, vehicle trailer hitches and additional accessories.
Horizon Europe‑Africa - With a product offering similar to Horizon Americas, Horizon Europe-Africa focuses its sales and manufacturing efforts in the Europe and Africa regions of the world.
The following table presents the Company’s operating segment activity:
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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|
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|
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2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
(dollars in thousands)
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Net Sales
|
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|
|
|
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|
|
Horizon Americas
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$
|
74,120
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|
|
$
|
108,950
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|
|
$
|
166,490
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|
|
$
|
204,450
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|
|
Horizon Europe-Africa
|
|
46,370
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|
|
83,700
|
|
|
117,250
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|
|
165,870
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Total
|
|
$
|
120,490
|
|
|
$
|
192,650
|
|
|
$
|
283,740
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|
|
$
|
370,320
|
|
|
Operating Profit (Loss)
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
$
|
3,430
|
|
|
$
|
9,490
|
|
|
$
|
6,160
|
|
|
$
|
7,990
|
|
|
Horizon Europe-Africa
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|
(5,970)
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|
|
1,580
|
|
|
(8,480)
|
|
|
(1,610)
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|
|
Corporate
|
|
(5,430)
|
|
|
(8,420)
|
|
|
(12,330)
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|
|
(17,100)
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|
|
Total
|
|
$
|
(7,970)
|
|
|
$
|
2,650
|
|
|
$
|
(14,650)
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|
|
$
|
(10,720)
|
|
18. Income Taxes
At the end of each interim reporting period, the Company makes an estimate of the annual effective income tax rate. Tax items included in the annual effective income tax rate are pro-rated for the full year and tax items discrete to a specific quarter are included in the effective income tax rate for that quarter. Effective tax rates vary from period to period as separate calculations are performed for those countries where the Company's operations are profitable and whose results continue to be tax-effected and for those countries where full deferred tax valuation allowances exist and are maintained. In determining the estimated annual effective tax rate, the Company analyzes various factors, including but not limited to, forecasts of projected annual earnings, taxing jurisdictions in which the pretax income and/or pretax losses will be generated, available tax planning strategies.
The effective income tax rate was (0.5)% and (0.2)% for the three and six months ended June 30, 2020, respectively. The effective income tax rate was 8.5% and 3.1% for the three and six months ended June 30, 2019, respectively. The 2020 lower effective tax rate compared to the statutory tax rate is attributable to the valuation allowance recorded in the US and several foreign jurisdictions, which resulted in no income tax benefit recognized for jurisdictional pretax losses.
The Company evaluates the realizability of its deferred tax assets on a quarterly basis. In completing this evaluation, the Company considers all available evidence in order to determine whether, based on the weight of the evidence, a valuation allowance is necessary. Full valuation allowances that are recorded for deferred tax assets in the US and certain foreign jurisdictions will be maintained until sufficient positive evidence exists to reduce or eliminate them. The factors considered by management in its determination of the probability of the realization of the deferred tax assets include, but are not limited to, recent historical financial results, historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences, tax planning strategies. If, based upon the weight of available evidence, it is more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded. The Company has recently experienced pre-tax losses. As of June 30, 2020, the Company believes that it is more likely than not that the recorded deferred tax assets will be realized.
On March 27, 2020, Congress enacted the CARES Act to provide certain relief as a result of the COVID-19 pandemic. The Company is currently evaluating how the CARES Act provisions will impact our consolidated financial statements, but is not currently projecting significant impacts on its income tax provision based on its domestic valuation allowance and historical operating performance.
19. Other Expense, Net
Other expense, net consists of the following components:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
Foreign currency (loss) / gain
|
|
$
|
(220)
|
|
|
$
|
720
|
|
|
$
|
(1,750)
|
|
|
$
|
(620)
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|
|
Customer pay discounts
|
|
(270)
|
|
|
(410)
|
|
|
(540)
|
|
|
(920)
|
|
|
Accretion arising from lease recovery
|
|
(20)
|
|
|
(30)
|
|
|
(50)
|
|
|
(70)
|
|
|
Loss on sale of business
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,630)
|
|
|
Other
|
|
60
|
|
|
220
|
|
|
220
|
|
|
270
|
|
|
Total
|
|
$
|
(450)
|
|
|
$
|
500
|
|
|
$
|
(2,120)
|
|
|
$
|
(4,970)
|
|
20. Subsequent Events
Limited Consent to Loan and Security Agreement
On July 3, 2020, the Company entered into a limited consent to the Loan Agreement with Encina, that consented to the Company’s entering into the 2020 Replacement Term Loan Amendment, as defined and described below.
Amendment to Term Loan Credit Agreement
On July 6, 2020, the Company entered into the 2020 Replacement Term Loan Amendment (the “Eleventh Term Amendment”) to amend the Term Loan Agreement. The Eleventh Term Amendment provided replacement term loans (the “Replacement Term Loans”) that refinanced and replaced the outstanding balances under the First Lien Term Loan Agreement and Second Lien Term Loan Agreement, plus any accrued interest thereon. The interest on the Replacement Term Loans will be payable at LIBOR plus 10.75% per annum, subject to a 1.00% LIBOR floor, of which 4.00% shall be payable in cash and LIBOR plus 6.75% shall be payable-in-kind (PIK) interest (provided that the Company may elect on not more than one occasion to pay all interest as PIK interest). Borrowings under the Eleventh Term Amendment mature on the earlier of: (i) June 30, 2022 and (ii) April 1, 2022 if the Convertible Notes, as defined in Note 9, Long-term Debt, are not repaid or otherwise discharged prior to such date. Additionally, the Eleventh Term Amendment provided for a 1.00% PIK closing fee, which was added to the principal amount of the Replacement Term Loans on the closing date; provided for a prepayment penalty on the entire principal amount of the Replacement Term Loans in an amount equal to 3.0% of the aggregate principal amount prepaid prior to December 31, 2021; and amended the fixed charge coverage ratio covenant beginning with the fiscal quarter ending June 30, 2021, as follows:
•June 30, 2021: 1.10 to 1.00
•September 30, 2021: 1.25 to 1.00
•December 31. 2021 and each fiscal quarter ending thereafter: 1.40 to 1.00
The transaction will be accounted for in the third quarter of 2020.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition contains forward-looking statements regarding industry outlook and our expectations regarding the performance of our business. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under the heading “Forward-Looking Statements,” at the beginning of this Quarterly Report on Form 10-Q. Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following discussion together with the Company’s reports on file with the Securities and Exchange Commission, as well as our Annual Report on Form 10-K for the year ended December 31, 2019 (See Item 1A. Risk Factors).
Overview
Headquartered in Plymouth, Michigan, Horizon Global Corporation and its consolidated subsidiaries (“Horizon,” “Horizon Global,” “we,” or the “Company”) are a leading designer, manufacturer and distributor of a wide variety of high-quality, custom-engineered towing, trailering, cargo management and other related accessory products on a global basis, primarily servicing the aftermarket, retail and e-commerce and original equipment manufacturers (“OEMs”) and original equipment servicers (“OESs”) (collectively, “OEs”) channels, supporting our customers through a regional service and delivery model.
Critical factors affecting our ability to succeed include:
•Our ability to realize the expected future economic benefits resulting from the changes made to our manufacturing operations, distribution footprint and management team 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;
•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 our administrative functions; and
•Our ability to manage the business disruption and the operational and financial impacts, including temporary facility closures, liquidity and other economic and business uncertainties related to the COVID-19 pandemic as further detailed below.
If we are unable to do any of the foregoing successfully, our financial condition and results of operations could be materially and adversely impacted.
In December 2019, a novel coronavirus (“COVID-19”) outbreak occurred in China and has since spread to other parts of the world and been declared a pandemic. In connection with the COVID-19 pandemic, we have been adhering to mandates and other guidance from local governments and health authorities, as well as the World Health Organization and the Centers for Disease Control. As a result of the pandemic, we experienced, and may experience again in the future, decreases in demand and customer orders for our products in all sales channels, as well as temporary disruptions and closures of some of our facilities due to decreased demand and government mandates. The COVID-19 pandemic also impacted various aspects of the supply chain as our suppliers experienced similar business disruptions due to operating restrictions from government mandates. We continue to monitor procurement of raw materials and components used in the manufacturing, distribution and sale of our products, but future disruptions in the supply chain due to the COVID-19 pandemic may cause difficulty in sourcing materials or unexpected shortages or delays in delivery of raw materials and components, and may result in increased costs in our supply chain. The extent to which we or our customers may successfully mitigate the impact of the COVID-19 pandemic, if at all, is unclear. The extent and duration of the impact of the COVID-19 pandemic and resulting effect on the Company’s operations continues to evolve and remains uncertain. However, we expect that our results of operations in future periods may be adversely impacted by the COVID-19 pandemic and its negative effects on global economic conditions. See Part II, Item 1A, “Risk Factors,” for additional risks relating to the COVID-19 pandemic.
Horizon Global reports its business in two operating segments: Horizon Americas and Horizon Europe-Africa. See Note 17, Segment Information, included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” within this Quarterly Report on Form 10-Q for further description of the Company’s operating segments.
We report shipping and handling expenses associated with Horizon Americas’ distribution network as an element of selling, general and administrative expenses in our condensed consolidated statements of operations. As such, gross margins for Horizon Americas may not be comparable to those of Horizon Europe-Africa, which primarily relies on third-party distributors, for which all costs are included in cost of sales.
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 US 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 US 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 three months ended June 30, 2020 (“2Q20”):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2020
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
Horizon Europe-Africa
|
|
Corporate
|
|
Consolidated
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
Net loss attributable to Horizon Global
|
|
|
|
|
|
|
|
$
|
(16,340)
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
(380)
|
|
|
Net loss
|
|
|
|
|
|
|
|
$
|
(16,720)
|
|
|
Interest expense
|
|
|
|
|
|
|
|
8,220
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
80
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
5,470
|
|
|
EBITDA
|
|
$
|
5,350
|
|
|
$
|
(3,250)
|
|
|
$
|
(5,050)
|
|
|
$
|
(2,950)
|
|
|
Net loss attributable to noncontrolling interest
|
|
—
|
|
|
380
|
|
|
—
|
|
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring, relocation and related business disruption costs
|
|
410
|
|
|
30
|
|
|
210
|
|
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash stock compensation
|
|
—
|
|
|
—
|
|
|
900
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on business divestitures and other assets
|
|
240
|
|
|
—
|
|
|
40
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs
|
|
—
|
|
|
—
|
|
|
560
|
|
|
560
|
|
|
Unrealized foreign currency remeasurement costs
|
|
(100)
|
|
|
690
|
|
|
(370)
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
5,900
|
|
|
$
|
(2,150)
|
|
|
$
|
(3,710)
|
|
|
$
|
40
|
|
The following table summarizes Adjusted EBITDA for our operating segments for the three months ended June 30, 2019 (“2Q19”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2019
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
Horizon Europe-Africa
|
|
Corporate
|
|
Consolidated
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
Net loss attributable to Horizon Global
|
|
|
|
|
|
|
|
$
|
(8,080)
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
(60)
|
|
|
Net loss
|
|
|
|
|
|
|
|
$
|
(8,140)
|
|
|
Interest expense
|
|
|
|
|
|
|
|
15,320
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
(1,040)
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
5,310
|
|
|
EBITDA
|
|
$
|
11,220
|
|
|
$
|
5,220
|
|
|
$
|
(4,990)
|
|
|
$
|
11,450
|
|
|
Net loss attributable to noncontrolling interest
|
|
—
|
|
|
60
|
|
|
—
|
|
|
60
|
|
|
Income from discontinued operations, net of tax
|
|
—
|
|
|
—
|
|
|
(2,990)
|
|
|
(2,990)
|
|
|
Severance
|
|
(270)
|
|
|
20
|
|
|
—
|
|
|
(250)
|
|
|
Restructuring, relocation and related business disruption costs
|
|
540
|
|
|
(10)
|
|
|
—
|
|
|
530
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash stock compensation
|
|
—
|
|
|
—
|
|
|
600
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on business divestitures and other assets
|
|
430
|
|
|
—
|
|
|
1,320
|
|
|
1,750
|
|
|
Board transition support
|
|
—
|
|
|
—
|
|
|
760
|
|
|
760
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs
|
|
—
|
|
|
—
|
|
|
1,300
|
|
|
1,300
|
|
|
Unrealized foreign currency remeasurement costs
|
|
150
|
|
|
(680)
|
|
|
(190)
|
|
|
(720)
|
|
|
Other
|
|
(10)
|
|
|
(200)
|
|
|
—
|
|
|
(210)
|
|
|
Adjusted EBITDA
|
|
$
|
12,060
|
|
|
$
|
4,410
|
|
|
$
|
(4,190)
|
|
|
$
|
12,280
|
|
Segment Information
Previously, the Company had three operating segments. However, as a result of the divestiture of Horizon Asia-Pacific (“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 3, Discontinued Operations, and Note 17, Segment Information, included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” within this Quarterly Report on Form 10-Q for additional information.
The following table summarizes financial information for our operating segments for 2Q20 and 2Q19:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
Change
|
|
|
|
Constant Currency Change
|
|
|
|
|
|
2020
|
|
As a Percentage of Net Sales
|
|
2019
|
|
As a Percentage of Net Sales
|
|
$
|
|
%
|
|
$
|
|
%
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
$
|
74,120
|
|
|
61.5
|
%
|
|
$
|
108,950
|
|
|
56.6
|
%
|
|
$
|
(34,830)
|
|
|
(32.0
|
%)
|
|
$
|
(34,600)
|
|
|
(31.8
|
%)
|
|
Horizon Europe-Africa
|
|
46,370
|
|
|
38.5
|
%
|
|
83,700
|
|
|
43.4
|
%
|
|
(37,330)
|
|
|
(44.6
|
%)
|
|
(36,520)
|
|
|
(43.6
|
%)
|
|
Total
|
|
$
|
120,490
|
|
|
100.0
|
%
|
|
$
|
192,650
|
|
|
100.0
|
%
|
|
$
|
(72,160)
|
|
|
(37.5
|
%)
|
|
$
|
(71,120)
|
|
|
(36.9
|
%)
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
$
|
18,140
|
|
|
24.5
|
%
|
|
$
|
26,900
|
|
|
24.7
|
%
|
|
$
|
(8,760)
|
|
|
(32.6
|
%)
|
|
$
|
(8,570)
|
|
|
(31.9
|
%)
|
|
Horizon Europe-Africa
|
|
(90)
|
|
|
(0.2)
|
%
|
|
9,410
|
|
|
11.2
|
%
|
|
(9,500)
|
|
|
(101.0
|
%)
|
|
(9,560)
|
|
|
(101.6
|
%)
|
|
Total
|
|
$
|
18,050
|
|
|
15.0
|
%
|
|
$
|
36,310
|
|
|
18.8
|
%
|
|
$
|
(18,260)
|
|
|
(50.3
|
%)
|
|
$
|
(18,130)
|
|
|
(49.9
|
%)
|
|
Selling, General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
$
|
14,720
|
|
|
19.9
|
%
|
|
$
|
17,450
|
|
|
16.0
|
%
|
|
$
|
(2,730)
|
|
|
(15.6
|
%)
|
|
$
|
(2,530)
|
|
|
(14.5
|
%)
|
|
Horizon Europe-Africa
|
|
5,860
|
|
|
12.6
|
%
|
|
7,800
|
|
|
9.3
|
%
|
|
(1,940)
|
|
|
(24.9
|
%)
|
|
(1,780)
|
|
|
(22.8
|
%)
|
|
Corporate
|
|
5,420
|
|
|
N/A
|
|
8,420
|
|
|
N/A
|
|
(3,000)
|
|
|
(35.6
|
%)
|
|
(3,000)
|
|
|
(35.6
|
%)
|
|
Total
|
|
$
|
26,000
|
|
|
21.6
|
%
|
|
$
|
33,670
|
|
|
17.5
|
%
|
|
$
|
(7,670)
|
|
|
(22.8
|
%)
|
|
$
|
(7,310)
|
|
|
(21.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
$
|
3,430
|
|
|
4.6
|
%
|
|
$
|
9,490
|
|
|
8.7
|
%
|
|
$
|
(6,060)
|
|
|
(63.9
|
%)
|
|
$
|
(6,080)
|
|
|
(64.1
|
%)
|
|
Horizon Europe-Africa
|
|
(5,970)
|
|
|
(12.9)
|
%
|
|
1,580
|
|
|
1.9
|
%
|
|
(7,550)
|
|
|
(477.8
|
%)
|
|
(7,770)
|
|
|
(491.8
|
%)
|
|
Corporate
|
|
(5,430)
|
|
|
N/A
|
|
(8,420)
|
|
|
N/A
|
|
2,990
|
|
|
(35.5
|
%)
|
|
2,990
|
|
|
(35.5
|
%)
|
|
Total
|
|
$
|
(7,970)
|
|
|
(6.6)
|
%
|
|
$
|
2,650
|
|
|
1.4
|
%
|
|
$
|
(10,620)
|
|
|
(400.8
|
%)
|
|
$
|
(10,860)
|
|
|
(409.8
|
%)
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
$
|
900
|
|
|
1.2
|
%
|
|
$
|
3,070
|
|
|
2.8
|
%
|
|
$
|
(2,170)
|
|
|
(70.7
|
%)
|
|
$
|
(2,170)
|
|
|
(70.7
|
%)
|
|
Horizon Europe-Africa
|
|
490
|
|
|
1.1
|
%
|
|
1,050
|
|
|
1.3
|
%
|
|
(560)
|
|
|
(53.3
|
%)
|
|
(200)
|
|
|
(19.0
|
%)
|
|
Corporate
|
|
—
|
|
|
N/A
|
|
10
|
|
|
N/A
|
|
(10)
|
|
|
(100.0
|
%)
|
|
(10)
|
|
|
(100.0
|
%)
|
|
Total
|
|
$
|
1,390
|
|
|
1.2
|
%
|
|
$
|
4,130
|
|
|
2.1
|
%
|
|
$
|
(2,740)
|
|
|
(66.3
|
%)
|
|
$
|
(2,380)
|
|
|
(57.6
|
%)
|
|
Depreciation and Amortization of Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
$
|
2,040
|
|
|
2.8
|
%
|
|
$
|
2,280
|
|
|
2.1
|
%
|
|
$
|
(240)
|
|
|
(10.5
|
%)
|
|
$
|
(200)
|
|
|
(8.8
|
%)
|
|
Horizon Europe-Africa
|
|
3,370
|
|
|
7.3
|
%
|
|
2,940
|
|
|
3.5
|
%
|
|
430
|
|
|
14.6
|
%
|
|
540
|
|
|
18.4
|
%
|
|
Corporate
|
|
60
|
|
|
N/A
|
|
90
|
|
|
N/A
|
|
(30)
|
|
|
(33.3
|
%)
|
|
(30)
|
|
|
(33.3
|
%)
|
|
Total
|
|
$
|
5,470
|
|
|
4.5
|
%
|
|
$
|
5,310
|
|
|
2.8
|
%
|
|
$
|
160
|
|
|
3.0
|
%
|
|
$
|
310
|
|
|
5.8
|
%
|
|
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
$
|
5,900
|
|
|
8.0
|
%
|
|
$
|
12,060
|
|
|
11.1
|
%
|
|
$
|
(6,160)
|
|
|
(51.1
|
%)
|
|
N/A
|
|
N/A
|
|
Horizon Europe-Africa
|
|
(2,150)
|
|
|
(4.6)
|
%
|
|
4,410
|
|
|
5.3
|
%
|
|
(6,560)
|
|
|
(148.8
|
%)
|
|
N/A
|
|
N/A
|
|
Corporate
|
|
(3,710)
|
|
|
N/A
|
|
(4,190)
|
|
|
N/A
|
|
480
|
|
|
(11.5
|
%)
|
|
N/A
|
|
N/A
|
|
Total
|
|
$
|
40
|
|
|
0.03
|
%
|
|
$
|
12,280
|
|
|
6.4
|
%
|
|
$
|
(12,240)
|
|
|
(99.7
|
%)
|
|
N/A
|
|
N/A
|
Results of Operations Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019
Consolidated net sales decreased by $72.2 million, or 37.5%, to $120.5 million in 2Q20, as compared with $192.7 million in 2Q19, driven by a decrease in net sales in Horizon Americas and Horizon Europe-Africa, attributable to the continued impacts of economic uncertainty and business disruptions in these jurisdictions associated with the COVID-19 pandemic that began during the first quarter 2020. The decrease in net sales within Horizon Americas of $34.8 million was primarily driven by declines in sales volumes in the automotive OEM, retail and aftermarket sales channels. The decrease in net sales of $37.3 million in Horizon Europe-Africa was primarily driven by declines in sales volumes in the automotive OEM, automotive OES and aftermarket sales channels. However, the Company had positive momentum as the quarter progressed as economies and our manufacturing facilities began to reopen during this time period with consolidated net sales increasing each month.
The table below summarizes consolidated net sales for each month during the months ended March-June 2020 and 2019, as compared to the prior-year month ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Month Ended
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020 as a percentage of 2019
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
March
|
|
$
|
49,160
|
|
|
$
|
75,360
|
|
|
65.2
|
%
|
|
April
|
|
20,030
|
|
|
58,370
|
|
|
34.3
|
%
|
|
May
|
|
38,820
|
|
|
60,250
|
|
|
64.4
|
%
|
|
June
|
|
61,640
|
|
|
74,030
|
|
|
83.3
|
%
|
Consolidated net sales increased month-over-month in substantially all of our sales channels in May and June 2Q20, as compared to the prior month’s net sales. The table below summarizes May to April and June to May net sales as percent of change over the prior month:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Increase (Decrease) in Net Sales
Month-over-Month
|
|
|
|
|
|
May 2020 compared
to April 2020
|
|
June 2020 compared
to May 2020
|
|
Automotive OEM
|
|
348.6
|
%
|
|
123.7
|
%
|
|
Automotive OES
|
|
40.8
|
%
|
|
20.3
|
%
|
|
Aftermarket
|
|
70.3
|
%
|
|
72.2
|
%
|
|
Retail
|
|
54.7
|
%
|
|
14.2
|
%
|
|
Industrial
|
|
54.6
|
%
|
|
27.9
|
%
|
|
E-commerce
|
|
87.7
|
%
|
|
32.8
|
%
|
|
Total
|
|
93.8
|
%
|
|
58.8
|
%
|
Gross profit margin (gross profit as a percentage of net sales) was 15.0% and 18.8% during 2Q20 and 2Q19, respectively. Gross profit margin was negatively impacted in both operating segments primarily due to the continued impacts of COVID-19 and related sales volume declines.
Selling, general and administrative (“SG&A”) expenses decreased by $7.7 million, primarily attributable to lower distribution center lease, operating and support costs in Horizon Americas. In Horizon Europe-Africa, lower administrative and personnel cost savings were realized as a result of prior-year restructuring and business rationalization projects, as well as the reimbursement of certain payroll costs as part of a government payroll reimbursement program. Additionally, Corporate incurred $2.8 million of higher professional service fees and other costs incurred in 2Q19 related to a new debt issuance, amendments, and modifications and related structure changes.
Operating margin (operating profit (loss) as a percentage of net sales) was (6.6)% and 1.4% in 2Q20 and 2Q19, respectively. Operating loss increased by $10.7 million to an operating loss of $8.0 million in 2Q20, from an operating profit of $2.7 million in 2Q19, primarily as a result of the operational results detailed above.
Other expense, net increased by $1.0 million to $0.5 million in 2Q20, as compared to income of $0.5 million in 2Q19, primarily attributable to a $0.2 million foreign currency loss in 2Q20 as compared to a $0.7 million foreign currency gain in 2Q19.
Interest expense decreased by $7.1 million to $8.2 million in 2Q20, compared to $15.3 million in 2Q19. Interest expense decreased primarily as a result of the pay down of principal on the Company’s First Lien Term Loan (as defined below) in September 2019, which resulted in lower borrowings as well as lower interest rates compared to 2Q19.
The effective income tax rate for continuing operations for 2Q20 and 2Q19 was (0.5)% and 8.5%, respectively. The 2Q20 lower effective tax rate compared to the statutory tax rate is attributable to the valuation allowance recorded in the US and several foreign jurisdictions at June 30, 2020, which resulted in no income tax benefit recognized for jurisdictional pretax losses.
Net loss from continuing operations increased by $5.6 million to a net loss of $16.7 million in 2Q20, compared to a net loss from continuing operations of $11.1 million in 2Q19, primarily as a result of the operational results detailed above.
Income from discontinued operations, net of tax is attributable to the sale of the Company’s former APAC operating segment, which was sold in September 2019. APAC has been presented as discontinued operations in our condensed consolidated financial statements in accordance with FASB ASC 205, Discontinued Operations. See Note 3, Discontinued Operations, included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” within this Quarterly Report on Form 10-Q for further description of the Company’s discontinued operations.
See below for a discussion of operating results by segment.
Horizon Americas
Net sales by sales channel, in thousands, for Horizon Americas during 2Q20 and 2Q19 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Change
|
|
|
|
|
|
2020
|
|
2019
|
|
$
|
|
%
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
Automotive OEM
|
|
$
|
9,510
|
|
|
$
|
23,680
|
|
|
$
|
(14,170)
|
|
|
(59.8)
|
%
|
|
Automotive OES
|
|
1,080
|
|
|
1,810
|
|
|
(730)
|
|
|
(40.3)
|
%
|
|
Aftermarket
|
|
22,280
|
|
|
28,840
|
|
|
(6,560)
|
|
|
(22.7)
|
%
|
|
Retail
|
|
22,830
|
|
|
33,200
|
|
|
(10,370)
|
|
|
(31.2)
|
%
|
|
Industrial
|
|
5,040
|
|
|
6,930
|
|
|
(1,890)
|
|
|
(27.3)
|
%
|
|
E-commerce
|
|
13,370
|
|
|
14,470
|
|
|
(1,100)
|
|
|
(7.6)
|
%
|
|
Other
|
|
10
|
|
|
20
|
|
|
(10)
|
|
|
N/A
|
|
Total
|
|
$
|
74,120
|
|
|
$
|
108,950
|
|
|
$
|
(34,830)
|
|
|
(32.0)
|
%
|
Horizon Americas 2Q20 results continued to be negatively impacted by the COVID-19 pandemic. As a result, net sales decreased by $34.8 million, or 32.0%, to $74.1 million in 2Q20, as compared to $109.0 million during 2Q19, primarily attributable to lower volumes across all of our sales channels, due to the effects of the COVID-19 pandemic in 2Q20. This decrease was partially offset by a $3.2 million decrease in sales discounts, returns and allowances in 2Q20 as compared with 2Q19. The demand for our products remained strong and we began to see a strong rebound in our net sales in May and June 2020 as economies and our primary manufacturing facilities began to reopen and our Edgerton, Kansas, distribution facility ramped up to meet demand during this time period.
The table below summarizes Horizon Americas net sales for each month during the months ended March-June 2020 and 2019, as compared to the prior-year month ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Month Ended
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020 as a percentage of 2019
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
March
|
|
$
|
29,200
|
|
|
$
|
41,170
|
|
|
70.9
|
%
|
|
April
|
|
13,560
|
|
|
33,790
|
|
|
40.1
|
%
|
|
May
|
|
23,760
|
|
|
33,710
|
|
|
70.5
|
%
|
|
June
|
|
36,800
|
|
|
41,450
|
|
|
88.8
|
%
|
Horizon Americas’ net sales increased month-over-month in substantially all of the sales channels in May and June 2Q20, as compared to the prior month’s net sales. The table below summarizes May to April and June to May net sales as percent of change over the prior month:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Increase (Decrease) in Net Sales
Month-over-Month
|
|
|
|
|
|
May 2020 compared
to April 2020
|
|
June 2020 compared
to May 2020
|
|
Automotive OEM
|
|
363.7
|
%
|
|
169.6
|
%
|
|
Automotive OES
|
|
(27.1)
|
%
|
|
31.8
|
%
|
|
Aftermarket
|
|
77.4
|
%
|
|
90.1
|
%
|
|
Retail
|
|
54.7
|
%
|
|
14.2
|
%
|
|
Industrial
|
|
48.0
|
%
|
|
26.2
|
%
|
|
E-commerce
|
|
84.0
|
%
|
|
30.3
|
%
|
|
Total
|
|
75.2
|
%
|
|
54.9
|
%
|
Horizon Americas’ gross profit decreased by $8.8 million to $18.1 million in 2Q20 compared to $26.9 million in 2Q19. The decrease in gross profit margin reflects the changes in sales detailed above. Additionally, gross profit was impacted by the following:
–$2.9 million of favorable manufacturing costs;
–$1.7 million lower scrap costs and inventory reserves; and
–$1.2 million in lower outbound freight costs.
SG&A expenses decreased by $2.8 million to $14.7 million, or 19.9% of net sales, in 2Q20, as compared to $17.5 million, or 16.0% of net sales, in 2Q19. The decrease in SG&A expenses was attributable to the following:
–$1.3 million of lower distribution center lease, operating and support costs; and
–$1.2 million of lower litigation and other administrative costs.
Horizon Americas’ operating margin decreased by $6.1 million to an operating profit of $3.4 million, or 4.6% of net sales, in 2Q20, as compared to an operating profit of $9.5 million, or 8.7% of net sales, in 2Q19. Operating margin declined primarily due to the operational results detailed above.
Horizon Americas’ Adjusted EBITDA decreased by $6.2 million to $5.9 million in 2Q20, as compared to Adjusted EBITDA of $12.1 million in 2Q19. Adjusted EBITDA declined primarily due to the operational results above.
Horizon Europe-Africa
Net sales by sales channel, in thousands, for Horizon Europe-Africa during 2Q20 and 2Q19 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Change
|
|
|
|
|
|
2020
|
|
2019
|
|
$
|
|
%
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
Automotive OEM
|
|
$
|
20,620
|
|
|
$
|
45,780
|
|
|
$
|
(25,160)
|
|
|
(55.0)
|
%
|
|
Automotive OES
|
|
7,720
|
|
|
16,040
|
|
|
(8,320)
|
|
|
(51.9)
|
%
|
|
Aftermarket
|
|
16,680
|
|
|
20,070
|
|
|
(3,390)
|
|
|
(16.9)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
340
|
|
|
860
|
|
|
(520)
|
|
|
(60.5)
|
%
|
|
E-commerce
|
|
230
|
|
|
560
|
|
|
(330)
|
|
|
(58.9)
|
%
|
|
Other
|
|
780
|
|
|
390
|
|
|
390
|
|
|
100.0
|
%
|
|
Total
|
|
$
|
46,370
|
|
|
$
|
83,700
|
|
|
$
|
(37,330)
|
|
|
(44.6)
|
%
|
Horizon Europe-Africa 2Q20 results continued to be negatively impacted by the COVID-19 pandemic as the Company temporarily idled certain manufacturing facilities in the first half of 2Q20, in line with customer demand and in accordance with applicable government mandated operational restrictions. As a result, net sales decreased by $37.3 million, or 44.6%, to $46.4 million in 2Q20, as compared to $83.7 million in 2Q19, primarily attributable to lower volumes in the automotive OEM, automotive OES and aftermarket sales channels. As the operational restrictions began to ease and economies of these
jurisdictions began to reopen, our primary manufacturing facilities also reopened with improving results as the quarter progressed.
The table below summarizes Horizon Europe-Africa net sales for each month during the months ended March-June 2020 and 2019, as compared to the prior-year month ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Month Ended
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020 as a percentage of 2019
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
March
|
|
$
|
19,960
|
|
|
$
|
34,190
|
|
|
58.4
|
%
|
|
April
|
|
6,470
|
|
|
24,580
|
|
|
26.3
|
%
|
|
May
|
|
15,060
|
|
|
26,540
|
|
|
56.7
|
%
|
|
June
|
|
24,840
|
|
|
32,580
|
|
|
76.2
|
%
|
Horizon Europe-Africa’s net sales increased month-over-month in substantially all of the sales channels in May and June 2Q20, as compared to the prior month’s net sales. The table below summarizes May to April and June to May net sales as percent of change over the prior month:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Increase (Decrease) in Net Sales
Month-over-Month
|
|
|
|
|
|
May 2020 compared
to April 2020
|
|
June 2020 compared
to May 2020
|
|
Automotive OEM
|
|
343.1
|
%
|
|
106.0
|
%
|
|
Automotive OES
|
|
56.6
|
%
|
|
19.0
|
%
|
|
Aftermarket
|
|
62.4
|
%
|
|
51.0
|
%
|
|
Industrial(1)
|
|
NMF
|
|
153.8
|
%
|
|
E-commerce(1)
|
|
NMF
|
|
62.3
|
%
|
|
Total
|
|
132.8
|
%
|
|
64.9
|
%
|
(1)NMF is defined as No Meaningful Formula.
Horizon Europe-Africa’s gross profit decreased by $9.5 million to $0.1 million in 2Q20, as compared to $9.4 million in 2Q19. The decrease in gross profit margin reflects the changes in sales detailed above. In addition, gross profit was impacted by the following:
–$1.6 million of lower outbound freight costs; and
–$2.8 million of payroll reimbursement costs received in 2Q20 under terms of government payroll reimbursement programs, which includes the KUG (as defined in the Liquidity section below).
SG&A expenses decreased by $1.9 million to $5.9 million, or 12.6% of net sales, in 2Q20, as compared to $7.8 million, or 9.3% of net sales, in 2Q19. The decrease in SG&A expenses was primarily attributable to the following:
–$1.6 million of lower personnel and compensation costs, which includes $0.4 million of payroll reimbursement costs received in 2Q20 under terms of government payroll reimbursement programs, which includes the KUG.
Horizon Europe-Africa’s operating margin decreased by $7.6 million to an operating loss of $(6.0) million, or (12.9)% of net sales, in 2Q20, as compared to an operating profit of $1.6 million, or 1.9% of net sales, in 2Q19. Operating margin declined primarily due to the operational results detailed above.
Horizon Europe-Africa’s Adjusted EBITDA decreased by $6.6 million to $(2.2) million in 2Q20, as compared to Adjusted EBITDA of $4.4 million in 2Q19. Adjusted EBITDA decreased primarily due to the operational results described above.
Corporate Expenses
Corporate expenses included in operating loss decreased by $3.0 million to $5.4 million in 2Q20, as compared to $8.4 million in 2Q19. The decrease was primarily attributable to $2.8 million of higher professional service fees and other costs incurred in 2Q19 related to a new debt issuance, amendments, and modifications and related structure changes.
Corporate Adjusted EBITDA was $(3.7) million during 2Q20, which was an improvement of $0.5 million, as compared to Adjusted EBITDA of $(4.2) million in 2Q19. Adjusted EBITDA improved primarily due to lower discretionary and administrative support costs in 2Q20.
The following table summarizes Adjusted EBITDA for our operating segments for the six months ended June 30, 2020 (“2Q20 YTD”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2020
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
Horizon Europe-Africa
|
|
Corporate
|
|
Consolidated
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
Net loss attributable to Horizon Global
|
|
|
|
|
|
|
|
$
|
(33,080)
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
(670)
|
|
|
Net loss
|
|
|
|
|
|
|
|
$
|
(33,750)
|
|
|
Interest expense
|
|
|
|
|
|
|
|
16,410
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
70
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
10,530
|
|
|
EBITDA
|
|
$
|
10,290
|
|
|
$
|
(4,340)
|
|
|
$
|
(12,690)
|
|
|
$
|
(6,740)
|
|
|
Net loss attributable to noncontrolling interest
|
|
—
|
|
|
670
|
|
|
—
|
|
|
670
|
|
|
Loss from discontinued operations, net of tax
|
|
—
|
|
|
—
|
|
|
500
|
|
|
500
|
|
|
Severance
|
|
530
|
|
|
20
|
|
|
(10)
|
|
|
540
|
|
|
Restructuring, relocation and related business disruption costs
|
|
1,300
|
|
|
30
|
|
|
320
|
|
|
1,650
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash stock compensation
|
|
—
|
|
|
—
|
|
|
1,320
|
|
|
1,320
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on business divestitures and other assets
|
|
600
|
|
|
(180)
|
|
|
40
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
Product liability and litigation claims
|
|
—
|
|
|
1,510
|
|
|
—
|
|
|
1,510
|
|
|
Debt issuance costs
|
|
—
|
|
|
—
|
|
|
1,310
|
|
|
1,310
|
|
|
Unrealized foreign currency remeasurement costs
|
|
(700)
|
|
|
2,440
|
|
|
10
|
|
|
1,750
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
12,020
|
|
|
$
|
150
|
|
|
$
|
(9,200)
|
|
|
$
|
2,970
|
|
The following table summarizes Adjusted EBITDA for our operating segments for the six months ended June 30, 2019 (“2Q19 YTD”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2019
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
Horizon Europe-Africa
|
|
Corporate
|
|
Consolidated
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
Net loss attributable to Horizon Global
|
|
|
|
|
|
|
|
$
|
(33,180)
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
(580)
|
|
|
Net loss
|
|
|
|
|
|
|
|
$
|
(33,760)
|
|
|
Interest expense
|
|
|
|
|
|
|
|
26,150
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
(1,310)
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
10,520
|
|
|
EBITDA
|
|
$
|
11,250
|
|
|
$
|
580
|
|
|
$
|
(10,230)
|
|
|
$
|
1,600
|
|
|
Net loss attributable to noncontrolling interest
|
|
—
|
|
|
580
|
|
|
—
|
|
|
580
|
|
|
Income from discontinued operations, net of tax
|
|
—
|
|
|
—
|
|
|
(6,770)
|
|
|
(6,770)
|
|
|
Severance
|
|
(190)
|
|
|
—
|
|
|
—
|
|
|
(190)
|
|
|
Restructuring, relocation and related business disruption costs
|
|
1,310
|
|
|
(1,410)
|
|
|
—
|
|
|
(100)
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash stock compensation
|
|
—
|
|
|
—
|
|
|
970
|
|
|
970
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on business divestitures and other assets
|
|
960
|
|
|
3,630
|
|
|
1,320
|
|
|
5,910
|
|
|
Board transition support
|
|
—
|
|
|
—
|
|
|
1,450
|
|
|
1,450
|
|
|
Product liability and litigation claims
|
|
—
|
|
|
4,320
|
|
|
—
|
|
|
4,320
|
|
|
Debt issuance costs
|
|
—
|
|
|
—
|
|
|
3,040
|
|
|
3,040
|
|
|
Unrealized foreign currency remeasurement costs
|
|
(80)
|
|
|
560
|
|
|
140
|
|
|
620
|
|
|
Other
|
|
200
|
|
|
(310)
|
|
|
(100)
|
|
|
(210)
|
|
|
Adjusted EBITDA
|
|
$
|
13,450
|
|
|
$
|
7,950
|
|
|
$
|
(10,180)
|
|
|
$
|
11,220
|
|
The following table summarizes financial information for our operating segments for 2Q20 YTD and 2Q19 YTD:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
Change
|
|
|
|
Constant Currency Change
|
|
|
|
|
|
2020
|
|
As a Percentage
of Net Sales
|
|
2019
|
|
As a Percentage
of Net Sales
|
|
$
|
|
%
|
|
$
|
|
%
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
$
|
166,490
|
|
|
58.7
|
%
|
|
$
|
204,450
|
|
|
55.2
|
%
|
|
$
|
(37,960)
|
|
|
(18.6)
|
%
|
|
$
|
(37,550)
|
|
|
(18.4)
|
%
|
|
Horizon Europe-Africa
|
|
117,250
|
|
|
41.3
|
%
|
|
165,870
|
|
|
44.8
|
%
|
|
(48,620)
|
|
|
(29.3)
|
%
|
|
(45,850)
|
|
|
(27.6)
|
%
|
|
Total
|
|
$
|
283,740
|
|
|
100.0
|
%
|
|
$
|
370,320
|
|
|
100.0
|
%
|
|
$
|
(86,580)
|
|
|
(23.4)
|
%
|
|
$
|
(83,400)
|
|
|
(22.5)
|
%
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
$
|
37,760
|
|
|
22.7
|
%
|
|
$
|
44,810
|
|
|
21.9
|
%
|
|
$
|
(7,050)
|
|
|
(15.7)
|
%
|
|
$
|
(6,810)
|
|
|
(15.2)
|
%
|
|
Horizon Europe-Africa
|
|
6,540
|
|
|
5.6
|
%
|
|
15,060
|
|
|
9.1
|
%
|
|
(8,520)
|
|
|
(56.6)
|
%
|
|
(8,440)
|
|
|
(56.0)
|
%
|
|
Total
|
|
$
|
44,300
|
|
|
15.6
|
%
|
|
$
|
59,870
|
|
|
16.2
|
%
|
|
$
|
(15,570)
|
|
|
(26.0)
|
%
|
|
$
|
(15,250)
|
|
|
(25.5)
|
%
|
|
Selling, General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
$
|
31,550
|
|
|
19.0
|
%
|
|
$
|
36,860
|
|
|
18.0
|
%
|
|
$
|
(5,310)
|
|
|
(14.4)
|
%
|
|
$
|
(5,040)
|
|
|
(13.7)
|
%
|
|
Horizon Europe-Africa
|
|
15,000
|
|
|
12.8
|
%
|
|
18,080
|
|
|
10.9
|
%
|
|
(3,080)
|
|
|
(17.0)
|
%
|
|
(2,670)
|
|
|
(14.8)
|
%
|
|
Corporate
|
|
12,310
|
|
|
N/A
|
|
17,100
|
|
|
N/A
|
|
(4,790)
|
|
|
(28.0)
|
%
|
|
(4,790)
|
|
|
(28.0)
|
%
|
|
Total
|
|
$
|
58,860
|
|
|
20.7
|
%
|
|
$
|
72,040
|
|
|
19.5
|
%
|
|
$
|
(13,180)
|
|
|
(18.3)
|
%
|
|
$
|
(12,500)
|
|
|
(17.4)
|
%
|
|
Operating Profit (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
$
|
6,160
|
|
|
3.7
|
%
|
|
$
|
7,990
|
|
|
3.9
|
%
|
|
$
|
(1,830)
|
|
|
(22.9)
|
%
|
|
$
|
(1,870)
|
|
|
(23.4)
|
%
|
|
Horizon Europe-Africa
|
|
(8,480)
|
|
|
(7.2)
|
%
|
|
(1,610)
|
|
|
(1.0
|
%)
|
|
(6,870)
|
|
|
426.7
|
%
|
|
(7,200)
|
|
|
447.2
|
%
|
|
Corporate
|
|
(12,330)
|
|
|
N/A
|
|
(17,100)
|
|
|
N/A
|
|
4,770
|
|
|
(27.9)
|
%
|
|
4,770
|
|
|
(27.9)
|
%
|
|
Total
|
|
$
|
(14,650)
|
|
|
(5.2)
|
%
|
|
$
|
(10,720)
|
|
|
(2.9
|
%)
|
|
$
|
(3,930)
|
|
|
36.7
|
%
|
|
$
|
(4,300)
|
|
|
40.1
|
%
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
$
|
1,470
|
|
|
0.9
|
%
|
|
$
|
3,830
|
|
|
1.9
|
%
|
|
$
|
(2,360)
|
|
|
(61.6)
|
%
|
|
$
|
(2,360)
|
|
|
(61.6)
|
%
|
|
Horizon Europe-Africa
|
|
3,980
|
|
|
3.4
|
%
|
|
1,800
|
|
|
1.1
|
%
|
|
2,180
|
|
|
121.1
|
%
|
|
2,650
|
|
|
147.2
|
%
|
|
Corporate
|
|
—
|
|
|
N/A
|
|
50
|
|
|
N/A
|
|
(50)
|
|
|
(100.0)
|
%
|
|
(50)
|
|
|
(100.0)
|
%
|
|
Total
|
|
$
|
5,450
|
|
|
1.9
|
%
|
|
$
|
5,680
|
|
|
1.5
|
%
|
|
$
|
(230)
|
|
|
(4.0)
|
%
|
|
$
|
240
|
|
|
4.2
|
%
|
|
Depreciation and Amortization of Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
$
|
4,200
|
|
|
2.5
|
%
|
|
$
|
4,310
|
|
|
2.1
|
%
|
|
$
|
(110)
|
|
|
(2.6)
|
%
|
|
$
|
(60)
|
|
|
(1.4)
|
%
|
|
Horizon Europe-Africa
|
|
6,220
|
|
|
5.3
|
%
|
|
6,040
|
|
|
3.6
|
%
|
|
180
|
|
|
3.0
|
%
|
|
370
|
|
|
6.1
|
%
|
|
Corporate
|
|
110
|
|
|
N/A
|
|
170
|
|
|
N/A
|
|
(60)
|
|
|
(35.3)
|
%
|
|
(60)
|
|
|
(35.3)
|
%
|
|
Total
|
|
$
|
10,530
|
|
|
3.7
|
%
|
|
$
|
10,520
|
|
|
2.8
|
%
|
|
$
|
10
|
|
|
0.1
|
%
|
|
$
|
250
|
|
|
2.4
|
%
|
|
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Horizon Americas
|
|
$
|
12,020
|
|
|
7.2
|
%
|
|
$
|
13,450
|
|
|
6.6
|
%
|
|
$
|
(1,430)
|
|
|
(10.6)
|
%
|
|
N/A
|
|
N/A
|
|
Horizon Europe-Africa
|
|
150
|
|
|
0.1
|
%
|
|
7,950
|
|
|
4.8
|
%
|
|
(7,800)
|
|
|
(98.1)
|
%
|
|
N/A
|
|
N/A
|
|
Corporate
|
|
(9,200)
|
|
|
N/A
|
|
(10,180)
|
|
|
N/A
|
|
980
|
|
|
(9.6)
|
%
|
|
N/A
|
|
N/A
|
|
Total
|
|
$
|
2,970
|
|
|
1.0
|
%
|
|
$
|
11,220
|
|
|
3.0
|
%
|
|
$
|
(8,250)
|
|
|
(73.5)
|
%
|
|
N/A
|
|
N/A
|
Results of Operations Six Months Ended June 30, 2020 Compared with Six Months Ended June 30, 2019
Overall, net sales decreased by $86.6 million, or 23.4%, to $283.7 million in 2Q20 YTD, as compared with $370.3 million in 2Q19 YTD. As noted in the following segment results discussions, the decrease in net sales in the Horizon Americas and Horizon Europe-Africa was attributable to the continued impacts of economic uncertainty and business disruptions in these jurisdictions associated with the COVID-19 pandemic that began during the first quarter 2020. The decrease in net sales within Horizon Americas of $38.0 million was primarily driven by declines in sales volumes in the automotive OEM and retail sales channels. The decrease in net sales of $48.6 million in Horizon Europe-Africa was primarily driven by declines in sales volumes in the automotive OEM and automotive OES sales channels. Net sales of Horizon Europe-Africa were also negatively impacted by the sale of its non-automotive business in the first quarter 2019 and unfavorable currency translation.
Gross profit margin (gross profit as a percentage of sales) was 15.6% and 16.2% in 2Q20 YTD and 2Q19 YTD, respectively. Gross profit margin was negatively impacted in both operating segments primarily due to the continued impacts of the COVID-19 pandemic and related sales volume declines.
SG&A expenses decreased by $13.2 million primarily attributable to lower distribution center lease, operating and support costs in Horizon Americas. In Horizon Europe-Africa, lower administration and personnel cost savings were realized as a result of prior-year restructuring and business rationalization projects, as well as the reimbursement of certain payroll costs as part of a government payroll reimbursement program. Additionally, Corporate incurred $4.5 million of higher professional service fees and other costs incurred in 2Q19 YTD related to new debt issuance, amendments, and modifications and related structure changes.
Operating margin (operating loss as a percentage of sales) was (5.2)% and (2.9)% in 2Q20 YTD and 2Q19 YTD, respectively. Operating loss increased $4.0 million to an operating loss of $14.7 million in 2Q20 YTD, compared to an operating loss of $10.7 million in 2Q19 YTD, primarily as a result of the operational results detailed above.
Other expense, net decreased by $2.9 million to $2.1 million in 2Q20 YTD compared to $5.0 million in 2Q19 YTD, primarily attributable to the $3.6 million loss on sale related to the Company’s divestiture of its non-automotive business in Horizon Europe-Africa in 2Q19 YTD that did not recur in 2Q20 YTD, partially offset by $1.1 million of additional foreign currency loss in 2Q20 YTD as compared to 2Q19 YTD.
Interest expense decreased by $9.7 million to $16.4 million in 2Q20 YTD, as compared to $26.2 million for 2Q19 YTD. Interest expense decreased primarily as a result of the pay down of principal on the Company’s First Lien Term Loan (as defined below) in September 2019, which resulted in lower borrowings as well as lower interest rates compared to 2Q19 YTD.
The effective income tax rate for 2Q20 YTD and 2Q19 YTD was (0.2)% and 3.1%, respectively. The 2Q20 YTD lower effective tax rate compared to the statutory tax rate is attributable to the valuation allowance recorded in the US and several foreign jurisdictions at June 30, 2020, which resulted in no income tax benefit recognized for jurisdictional pretax losses.
Net loss from continuing operations decreased by $7.3 million, to a net loss of $33.3 million for 2Q20 YTD, compared to a net loss of $40.5 million for 2Q19 YTD, primarily as a result of the operational results detailed above.
(Loss) income from discontinued operations, net of tax is attributable to the sale of the Company’s former APAC operating segment, which was sold in September 2019. During 2Q20 YTD, the remaining post-closing conditions of the sale were completed, including a true up to net cash proceeds, which resulted in a loss on sale of discontinued operations of $0.5 million. As a result, APAC has been presented as discontinued operations in our condensed consolidated financial statements in accordance with FASB ASC 205, Discontinued Operations. See Note 3, Discontinued Operations, included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” within this Quarterly Report on Form 10-Q for further description of the Company’s discontinued operations.
See below for a discussion of operating results by segment.
Horizon Americas
Net sales by sales channel, in thousands, for Horizon Americas during 2Q20 YTD and 2Q19 YTD are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
Change
|
|
|
|
|
|
2019
|
|
2018
|
|
$
|
|
%
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
Automotive OEM
|
|
$
|
29,870
|
|
|
$
|
43,920
|
|
|
$
|
(14,050)
|
|
|
(32.0)
|
%
|
|
Automotive OES
|
|
2,350
|
|
|
3,420
|
|
|
(1,070)
|
|
|
(31.3)
|
%
|
|
Aftermarket
|
|
49,050
|
|
|
52,990
|
|
|
(3,940)
|
|
|
(7.4)
|
%
|
|
Retail
|
|
46,400
|
|
|
61,630
|
|
|
(15,230)
|
|
|
(24.7)
|
%
|
|
Industrial
|
|
12,890
|
|
|
16,210
|
|
|
(3,320)
|
|
|
(20.5)
|
%
|
|
E-commerce
|
|
25,880
|
|
|
26,260
|
|
|
(380)
|
|
|
(1.4)
|
%
|
|
Other
|
|
50
|
|
|
20
|
|
|
30
|
|
|
N/A
|
|
Total
|
|
$
|
166,490
|
|
|
$
|
204,450
|
|
|
$
|
(37,960)
|
|
|
(18.6)
|
%
|
Horizon Americas began 2Q20 YTD with strong performance and our initial operating results for the first quarter 2020 reflected strong demand for our products. However, the COVID-19 pandemic began to negatively impact results in March 2020 as the Company flexed down operations at its manufacturing and distribution facilities in line with customer demand and in accordance with applicable government mandated operational restrictions. As a result, net sales decreased by $38.0 million to $166.5 million in 2Q20 YTD, as compared to $204.5 million in 2Q19 YTD, primarily attributable to lower volumes in the automotive OEM and retail sales channels, due to the effects of the COVID-19 pandemic throughout 2Q20 YTD. This decrease was partially offset by a $0.9 million decrease in sales discounts, returns and allowances in 2Q20 YTD as compared with 2Q19 YTD.
Horizon Americas’ gross profit decreased by $7.1 million to $37.8 million in 2Q20 YTD, as compared to $44.8 million in 2Q19 YTD. The decrease in gross profit margin reflects the changes in sales detailed above. Additionally, gross profit was impacted by the following:
–$5.1 million lower scrap costs and inventory reserves;
–$2.8 million of favorable manufacturing costs; and
–$2.7 million in lower outbound freight costs.
SG&A expenses decreased by $5.3 million to $31.6 million, or 19.0% of net sales in 2Q20 YTD, as compared to $36.9 million, or 18.0% of net sales, in 2Q19 YTD. The decrease in SG&A expenses was attributable to the following:
–$3.0 million of lower distribution center lease, operating and support costs;
–$1.4 million of lower litigation and other administrative costs; and
–$1.2 million of lower personnel and compensation costs.
Horizon Americas’ operating margin decreased by $1.8 million to an operating profit of $6.2 million, or 3.7% of net sales, in 2Q20 YTD, as compared to an operating profit of $8.0 million, or 3.9% of net sales, in 2Q19 YTD. Operating margin declined primarily due to the operational results detailed above.
Horizon Americas’ Adjusted EBITDA decreased by $1.4 million to $12.0 million in 2Q20 YTD, as compared to Adjusted EBITDA of $13.5 million in 2Q19 YTD. Adjusted EBITDA decreased primarily due to operational results detailed above.
Horizon Europe-Africa
Net sales by sales channel, in thousands, for Horizon Europe-Africa during 2Q20 YTD and 2Q19 YTD are as follows:
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|
Six Months Ended June 30,
|
|
|
|
Change
|
|
|
|
|
|
2020
|
|
2019
|
|
$
|
|
%
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
Automotive OEM
|
|
$
|
62,020
|
|
|
$
|
94,700
|
|
|
$
|
(32,680)
|
|
|
(34.5)
|
%
|
|
Automotive OES
|
|
20,180
|
|
|
29,330
|
|
|
(9,150)
|
|
|
(31.2)
|
%
|
|
Aftermarket
|
|
32,390
|
|
|
36,360
|
|
|
(3,970)
|
|
|
(10.9)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
660
|
|
|
1,560
|
|
|
(900)
|
|
|
N/A
|
|
E-commerce
|
|
660
|
|
|
1,090
|
|
|
(430)
|
|
|
(39.4)
|
%
|
|
Other
|
|
1,340
|
|
|
2,830
|
|
|
(1,490)
|
|
|
(52.7)
|
%
|
|
Total
|
|
$
|
117,250
|
|
|
$
|
165,870
|
|
|
$
|
(48,620)
|
|
|
(29.3)
|
%
|
Horizon Europe-Africa began 2Q20 YTD with strong performance and our initial operating results for the first quarter 2020 reflected strong demand for our products. However, the COVID-19 pandemic began to negatively impact results in March 2020 as the Company temporarily idled certain manufacturing facilities in line with customer demand and in accordance with applicable government mandated operational restrictions. As a result, net sales decreased by $48.6 million to $117.3 million in 2Q20 YTD, as compared to $165.9 million in 2Q19 YTD, primarily attributable to lower volumes in the automotive OEM and automotive OES sales channels, due to the effects of the COVID-19 pandemic throughout 2Q20 YTD. Net sales of Horizon Europe-Africa were also negatively impacted by $2.1 million related to the sale of its non-automotive business in the first quarter 2019 and $2.8 million of unfavorable currency translation.
Horizon Europe-Africa’s gross profit decreased by $8.5 million to $6.5 million in 2Q20 YTD, as compared to $15.1 million in 2Q19 YTD. The decrease in gross profit margin reflects the changes in sales detailed above. Additionally, gross profit was impacted by the following:
–$4.3 million of charges in 2Q19 YTD related to potential claims from product sold by Horizon Europe-Africa arising from potentially faulty components provided by a supplier that did not recur in 2Q20 YTD, see Note 13, Contingencies, included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements;”
–$3.5 million of payroll reimbursement costs received in 2Q20 YTD under terms of government payroll reimbursement programs, which includes the KUG (as defined in the Liquidity section below); partially offset by:
–$1.7 million of charges in 2Q20 YTD for royalty costs and settlement of certain intellectual property infringement claims, see Note 13, Contingencies, included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements”.
SG&A expenses decreased by $3.1 million to $15.0 million, or 12.8% of net sales in 2Q20 YTD, as compared to $18.1 million, or 10.9% of net sales, in 2Q19 YTD. The decrease in SG&A expenses was primarily attributable to the following:
–$2.3 million of lower personnel and compensation costs, which includes $0.5 million of payroll reimbursement costs received in 2Q20 YTD under terms of governmental payroll reimbursement programs, which includes the KUG.
Horizon Europe-Africa’s operating margin decreased by $6.9 million to an operating loss of $8.5 million, or (7.2)% of net sales in 2Q20 YTD, as compared to an operating loss of $1.6 million, or (1.0)% of net sales, in 2Q19 YTD. Operating margin declined primarily due to the operational results described above.
Horizon Europe-Africa’s Adjusted EBITDA decreased by $7.8 million to $0.2 million in 2Q20 YTD, as compared to Adjusted EBITDA of $8.0 million in 2Q19 YTD. Adjusted EBITDA decreased primarily due to operational results detailed above.
Corporate Expenses Corporate expenses included in operating loss decreased by $4.8 million to $12.3 million in 2Q20 YTD, as compared to $17.1 million in 2Q19 YTD. The decrease was primarily attributable to $4.5 million of higher professional service fees and other costs incurred in 2Q19 YTD related to a new debt issuance, amendments, and modifications and related structure changes.
Corporate Adjusted EBITDA was $(9.2) million during 2Q20 YTD, which was an improvement of $1.0 million, as compared to Adjusted EBITDA of $(10.2) million in 2Q19. Adjusted EBITDA improved primarily due to lower discretionary and administrative support costs in 2Q20 YTD, partially offset by higher personnel and compensation costs.
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 (as defined below). As of June 30, 2020, and December 31, 2019, there was $12.3 million and $8.7 million, respectively, of cash held at foreign subsidiaries. There may be country specific regulations that may restrict or result in increased costs in the repatriation of these funds.
We believe our available our cash on hand, cash flow from operations and availability under our Revolving Credit Facility are our most significant sources of liquidity. In response to the current uncertain economic environment resulting from the COVID-19 pandemic, the Company has pursued funding from available government programs and other sources of liquidity designed to strengthen its balance sheet and enhance financial flexibility. These sources include short-term loans, some of which are forgivable if certain conditions are met, as well as entering into or modifying other arrangements, including expanded use of receivables factoring. A summary of these actions is described below.
In April 2020, S.I.A.R.R. SAS (the “French Borrower”), an indirect subsidiary of the Company, received a loan from BNP Paribas (the “French Loan”) for $5.5 million. The French Loan, issued pursuant to an agreement dated April 9, 2020, between the French Borrower and BNP Paribas, matures on April 9, 2021. The French Loan bears interest at a rate of 0.5% per annum. The French Borrower, at its election, may repay the French Loan in full on April 9, 2021 or in monthly installments for a period of five years from the date of election.
In April 2020, Horizon Global Company LLC (the “US Borrower”), a direct US-based subsidiary of the Company, received a loan from PNC Bank, National Association for $8.7 million, pursuant to the Paycheck Protection Program (the “PPP Loan”) under Division A, Title I of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The PPP Loan, which is in the form of a Note dated April 18, 2020 issued by the US Borrower, matures on April 18, 2022. The PPP Loan bears interest at 1.0% per annum and is payable monthly commencing on November 15, 2020. Funds from the PPP Loan may be used for payroll, costs used to continue group health care benefits, rent and utilities. Under the terms of the PPP Loan, certain amounts may be forgiven if they are used for qualifying expenses as described in the CARES Act.
The Company submitted its PPP Loan application in good faith in accordance with the CARES Act and the guidance issued by the Small Business Administration (the “SBA”), including the SBA’s Paycheck Protection Program Loans Frequently Asked Questions. During the second quarter of 2020, the Company, in accordance with the final guidance issued by the United States Department of the Treasury, met the need and sized based criteria of the program. The Company plans to file its application of forgiveness in the near term and continues to use the PPP Loan proceeds on qualifying expenses; however, there is no guarantee that any portion of the PPP Loan proceeds will be forgiven.
In March 2020, Westfalia-Automotive Gmbh (“Westfalia”), an indirect subsidiary of Horizon Global Corporation, was approved for a government payroll reimbursement program in Germany under the Kurzarbeitergeld (the “KUG”). The KUG is designed to reimburse employers for payroll costs incurred and paid to employees affected by the business disruption and government mandated operating restrictions in place due to COVID-19 for the period March 1, 2020 through August 31, 2020. Westfalia was approved to receive reimbursement of certain costs for the period March 19, 2020 through August 31, 2020. For the three and six months ended June 30, 2020, the Company recognized $2.5 million and $3.3 million, respectively, for qualifying payroll costs incurred for which the Company expects to be reimbursed under terms of the KUG. The Company estimates it will recognize future reimbursements up to $2.0 million under the terms of the KUG, provided the aforementioned local operating restrictions remain in place.
The Company is also taking the following measures to reduce costs and ensure appropriate liquidity:
–pursuing additional governmental grant or loan programs in the jurisdictions in which it operates;
–participating in payroll or payroll tax deferral programs such as those enacted by the CARES Act;
–undertaking negotiations with landlords to defer short-term rent payments;
–assessing its supplier base and related payment terms to determine if supplier payment timing may be amended, extended and/or retimed;
–reducing or retiming investments, including capital expenditures, that will not materially impact future business opportunities or our organic growth; and
–reducing reliance on temporary employees in both administrative and operations functions.
Additionally, in the United States, the Company has not furloughed or otherwise voluntarily reduced its workforce during the crisis. To protect the continued employment of its US-based employees, the Company, in addition to the other cost savings measures described above, implemented a temporary 20% wage reduction for all employees in the United States. In some cases, employees outside of the United States have been furloughed in response to government mandated operational restrictions and
fluctuations in customer demand. To the extent available, the Company availed itself of local government programs to support furloughed employees, such as those described above.
In March 2020, the Company, as guarantor, entered into a Loan and Security Agreement (the “Loan Agreement”) with Encina Business Credit, LLC (“Encina”), as agent for the lenders party thereto, and Horizon Global Americas Inc. and Cequent Towing Products of Canada Ltd., as borrowers (the “ABL Borrowers”). The Loan Agreement provides for an asset-based revolving credit facility (the “Revolving Credit Facility”) in the maximum aggregate principal amount of $75.0 million subject to customary borrowing base limitations contained therein, and may be increased at the ABL Borrowers’ request in increments of $5.0 million, up to a maximum of five times over the life of the Revolving Credit Facility, for a total increase of up to $25.0 million. In March 2020, the Company drew down $19.0 million from its Revolving Credit Facility to strengthen liquidity and supplement the Company’s cash position in United States. As of June 30, 2020, the Company had availability of $11.3 million under the Revolving Credit Facility and $27.7 million of cash in the United States.
Refer to Note 9, Long-term Debt, included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” included within this Quarterly Report on Form 10-Q for additional information.
We believe the combination of these sources will enable us to meet our working capital, capital expenditures and other funding requirements. Our ability to fund our working capital needs, debt payments and other obligations, and to comply with financial covenants, including borrowing base limitations under our Revolving Credit Facility, depends on our future operating performance and cash flow and many factors outside of our control, including the costs of raw materials, the state of the automotive accessories market and financial and economic conditions and the extent and duration of the impact of the COVID-19 pandemic.
Cash Flows - Operating Activities
Net cash provided by and used for operating activities during 2Q20 YTD and 2Q19 YTD was $4.9 million and $(63.0) million, respectively. During 2Q20 YTD, the Company used $8.2 million in cash flows, based on the reported net loss of $33.3 million and after considering the effects of non-cash items related to gains and losses on dispositions of property and equipment, depreciation, amortization of intangible assets, amortization of original issuance discount and debt issuance costs, deferred income taxes, stock compensation, paid-in-kind interest, and other, net. During 2Q19 YTD, the Company used $29.9 million in cash flows, based on the reported net loss of $40.5 million and after considering the effects of similar non-cash items.
Changes in operating assets and liabilities sourced $13.1 million and used $(33.1) million of cash during 2Q20 YTD and 2Q19 YTD, respectively. Increases in accounts receivable resulted in a net use of cash of $16.8 million and $28.5 million during 2Q20 YTD and 2Q19 YTD, respectively. The increase in accounts receivable is lower in 2Q20 YTD as compared with 2Q19 YTD as a result of lower sales activity in 2Q20 due to impacts of COVID-19 while 2Q19 experienced higher sales activity, when compared with the respective fourth quarter periods.
Changes in inventory resulted in a source of cash of $19.3 million during 2Q20 YTD and use of cash of $(7.8) million during 2Q19 YTD. The decrease in inventory during 2Q20 YTD was due to improved inventory management. The increase in inventory during 2Q19 YTD was due to softening of demand at the start of the typically strong selling season.
Increases in accounts payable and accrued liabilities resulted in a source of cash of $13.5 million during 2Q20 YTD and $4.3 million during 2Q19 YTD. The source of cash for 2Q20 YTD as compared to 2Q19 YTD is primarily due to the mix of payments made to suppliers and vendors and the related terms.
Cash Flows - Investing Activities
Net cash used for investing activities during 2Q20 YTD was $(5.4) million and net cash provided by investing activities was $0.8 million during 2Q19 YTD. Capital expenditures for 2Q20 YTD and 2Q19 YTD were $5.5 million and $5.7 million, respectively, with both periods related to growth, capacity and productivity-related projects, primarily within Horizon Europe-Africa. During 2Q19 YTD, net proceeds from the sale of the non-automotive business were $5.0 million.
Cash Flows - Financing Activities
Net cash provided by financing activities was $29.3 million and $37.7 million during the 2Q20 YTD and 2Q19 YTD, respectively. During 2Q20 YTD, net proceeds from the Revolving Credit Facility, net of issuance costs, were $35.5 million. During 2Q20 YTD, proceeds from the PPP Loan were $8.7 million. During 2Q20 YTD and 2Q19 YTD, net repayments on the ABL Facility totaled $19.9 million and $11.7 million, respectively. During 2Q19 YTD, net proceeds from borrowings on our Second Lien Term Loan were $35.5 million, and cash of $10.1 million was used for repayments on our First Lien Term Loan.
Factoring Arrangements
We have factoring arrangements with financial institutions to sell certain accounts receivable under non-recourse agreements. Total receivables sold during the year under the factoring arrangements were $94.6 million and $133.2 million as of June 30, 2020 and 2019, respectively. We utilize factoring arrangements as part of our business funding to meet the Company’s working capital needs. The costs of participating in these arrangements are immaterial to our results.
Our Debt and Other Commitments
In March 2019, the Company entered into the Second Lien Term Loan Agreement that provides for a term loan facility in the aggregate principal amount of $51.0 million and matures on September 30, 2021. The interest on the Second Lien Term Loan may be paid, at the Company’s election, in cash, at the customary eurocurrency rate plus a margin of 10.50% per annum, or in-kind, at the customary eurocurrency rate plus a margin of 11.50%. The Second Lien Term Loan Agreement is subject to various affirmative and negative covenants including a secured net leverage ratio tested quarterly further detailed below.
In September 2019, the Company amended the existing First Lien Term Loan Agreement (“Eighth Term Amendment”) to provide consent for the sale of the Company’s APAC segment, provide consent for the Company to meet its prepayment obligation of the First Lien Term Loan, remove prepayment penalties and make certain negative covenants less restrictive. In September 2019, the Company paid down a portion of its First Lien Term Loan’s outstanding principal plus fees and paid-in-kind interest in the amount of $172.9 million.
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.
In March 2020, the Company amended the existing First Lien Term Loan Agreement (the “Ninth Term Amendment”) to remove the minimum liquidity covenant of $15.0 million, amend the net leverage ratio requirements to remove the December 31, 2020 leverage ratio test, and amend the fixed charge coverage ratio covenant to not be below 1.0 to 1.0 beginning with the fiscal quarter ending March 31, 2021, and replace the prior first lien leverage covenant with a secured net leverage ratio starting with the fiscal quarter ending March 31, 2021 as follows:
•March 31, 2021: 6.00 to 1.00
•June 30, 2021 and each fiscal quarter ending thereafter: 5.00 to 1.00
In March 2020, the Company amended the existing Second Lien Term Loan Agreement (the “Second Lien Second Amendment”) to amend certain financial covenants as outlined above.
In March 2020, the Company entered into the Loan Agreement, as defined above. The interest on the loans under the Loan Agreement are payable in cash at the interest rate of LIBOR plus 4.00% per annum, subject to a 1.00% LIBOR floor. All interest, fees, and other monetary obligations due may, in Encina’s discretion but upon prior notice to the Company, be charged to the loan account and thereafter be deemed to be part of the Revolving Credit Facility subject to the same interest rate. Borrowings under the Loan Agreement mature on the earlier of: (i) March 13, 2023 and (ii) 90 days prior to the maturity of any portion of the debt under the Company’s First Lien Term Loan or Second Lien Term Loan, as may be in effect from time to time, unless earlier terminated. Based on the maturity dates of the Company’s First Lien Term Loan and Second Lien Term Loan, the loans under the Loan Agreement would be due on March 31, 2021. As a result of the 2020 Replacement Term Loan Amendment, as defined below, the maturity of all borrowings under the Revolving Credit Facility were effectively extended to fiscal year 2022 and are presented in gross long-term debt in the accompanying condensed consolidated balance sheet as of June 30, 2020. With the proceeds of the Revolving Credit Facility, the Company paid in full all outstanding debt incurred under the ABL Facility, which the Company accounted for as a debt extinguishment.
As of June 30, 2020, $37.8 million was outstanding on the Revolving Credit Facility bearing interest at a weighted average rate of 5.0% and $25.5 million was outstanding on the First Lien Term Loan bearing interest at 7.0%. The Company had $11.3 million of availability under the Revolving Credit Facility as of June 30, 2020.
The Loan Agreement contains various negative and affirmative covenants and other requirements affecting us and our subsidiaries, including restrictions on incurrence of debt, liens, mergers, investments, loans, advances, guarantee obligations, acquisitions, asset dispositions, sale-leaseback transactions, hedging agreements, dividends and other restricted payments, transactions with affiliates, restrictive agreements and amendments to charters, bylaws, and other material documents. The Revolving Credit Facility does not include any financial maintenance covenants other than a financial covenant that stipulates the Company will not make Capital Expenditures (as defined in the Loan Agreement) exceeding $30.0 million during any fiscal year.
In May 2020, the Company entered into amendments, limited waivers and consents in connection with its Loan Agreement and the First Lien Term Loan Agreement (the “Tenth Term Amendment”) and the Second Lien Term Loan Agreement (“the Second Lien Third Amendment”), with an effective date of April 1, 2020, that, among other things, consented to the Company’s applying for, obtaining and incurring the PPP Loan and French Loan, each as defined and described above. The Tenth Term Amendment and Second Lien Third Amendment amended the fixed coverage ratio covenant to eliminate the March 31, 2021 testing period, amended the secured net leverage ratio covenant to eliminate the March 31, 2021 testing period, and amended the secured net leverage ratio levels as follows:
•June 30, 2021: 6.00 to 1.00
•September 30, 2021 and each fiscal quarter ending thereafter: 5.00 to 1.00
We are subject to variable interest rates on our First Lien Term Loan and Revolving Credit Facility. At June 30, 2020, one-month LIBOR and three-month LIBOR approximated 0.17% and 0.30%, respectively.
On July 3, 2020, the Company entered into a limited consent to the Loan Agreement with Encina, that consented to the Company’s entering into the 2020 Replacement Term Loan Amendment, as defined and described below.
On July 6, 2020, the Company entered into the 2020 Replacement Term Loan Amendment (the “Eleventh Term Amendment”) to amend the Term Loan Agreement. The Eleventh Term Amendment provided replacement term loans (the “Replacement Term Loans”) that refinanced and replaced the outstanding balances under the First Lien Term Loan Agreement and Second Lien Term Loan Agreement, plus any accrued interest thereon. The interest on the Replacement Term Loans will be payable at LIBOR plus 10.75% per annum, subject to a 1.00% LIBOR floor, of which 4.00% shall be payable in cash and LIBOR plus 6.75% shall be payable-in-kind (PIK) interest (provided that the Company may elect on not more than one occasion to pay all interest as PIK interest). Borrowings under the Eleventh Term Amendment mature on the earlier of: (i) June 30, 2022 and (ii) April 1, 2022 if the Convertible Notes, as defined in Note 9, Long-term Debt, in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” included within this Quarterly Report on Form 10-Q, are not repaid or otherwise discharged prior to such date. Additionally, the Eleventh Term Amendment provided for a 1.00% PIK closing fee, which was added to the principal amount of the Replacement Term Loans on the closing date; provided for a prepayment penalty on the entire principal amount of the Replacement Term Loans in an amount equal to 3.0% of the aggregate principal amount prepaid prior to December 31, 2021; and amended the fixed charge coverage ratio covenant beginning with the fiscal quarter ending June 30, 2021, as follows:
•June 30, 2021: 1.10 to 1.00
•September 30, 2021: 1.25 to 1.00
•December 31. 2021 and each fiscal quarter ending thereafter: 1.40 to 1.00
As a result of the amendment entered into on July 6, 2020, for the Company’s First Lien Term Loan and Second Lien Term Loan, and our current forecast through June 30, 2021, the Company believes it has sufficient liquidity to operate its business for the foreseeable future.
The Company is in compliance with all of its financial covenants in its debt agreements as of June 30, 2020. Refer to Note 9, Long-term Debt, in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” included within this Quarterly Report on Form 10-Q for additional information.
In addition to our long-term debt, we have other cash commitments related to leases. We account for these lease transactions as operating leases and rent expense related thereto for 2Q20 YTD was $7.2 million. We expect to continue to utilize leasing as a financing strategy in the future to meet capital expenditure needs and to reduce debt levels. Refer to Note 12, Leases, in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” included within this Quarterly Report on Form 10-Q for additional information.
Consolidated EBITDA
Consolidated EBITDA (defined as “Consolidated EBITDA” in our 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 of above, we use certain non-GAAP financial measures to assess performance and measure our covenants 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.
The reconciliations of net income (loss) attributable to Horizon Global to EBITDA, EBITDA to Adjusted EBITDA and Adjusted EBITDA to Consolidated EBITDA for the three months ended June 30, 2020 and 2019; the six months ended June 30, 2020 and 2019; and the last twelve months ended June 30, 2020 and 2019 are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
Last Twelve Months Ended June 30,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
2020
|
|
2019
|
|
Change
|
|
2020
|
|
2019
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Net (loss) income attributable to Horizon Global
|
|
$
|
(16,340)
|
|
|
$
|
(8,080)
|
|
|
$
|
(8,260)
|
|
|
$
|
(33,080)
|
|
|
$
|
(33,180)
|
|
|
$
|
100
|
|
|
$
|
80,720
|
|
|
$
|
(112,700)
|
|
|
$
|
193,420
|
|
|
Net loss attributable to noncontrolling interest
|
|
(380)
|
|
|
(60)
|
|
|
(320)
|
|
|
(670)
|
|
|
(580)
|
|
|
(90)
|
|
|
(1,320)
|
|
|
(1,040)
|
|
|
(280)
|
|
|
Net (loss) income
|
|
$
|
(16,720)
|
|
|
$
|
(8,140)
|
|
|
$
|
(8,580)
|
|
|
$
|
(33,750)
|
|
|
$
|
(33,760)
|
|
|
$
|
10
|
|
|
$
|
79,400
|
|
|
$
|
(113,740)
|
|
|
$
|
193,140
|
|
|
Interest expense
|
|
8,220
|
|
|
15,320
|
|
|
(7,100)
|
|
|
16,410
|
|
|
26,150
|
|
|
(9,740)
|
|
|
48,530
|
|
|
41,610
|
|
|
6,920
|
|
|
Income tax expense (benefit)
|
|
80
|
|
|
(1,040)
|
|
|
1,120
|
|
|
70
|
|
|
(1,310)
|
|
|
1,380
|
|
|
(9,320)
|
|
|
1,520
|
|
|
(10,840)
|
|
|
Depreciation and amortization
|
|
5,470
|
|
|
5,310
|
|
|
160
|
|
|
10,530
|
|
|
10,520
|
|
|
10
|
|
|
21,680
|
|
|
21,120
|
|
|
560
|
|
|
EBITDA
|
|
$
|
(2,950)
|
|
|
$
|
11,450
|
|
|
$
|
(14,400)
|
|
|
$
|
(6,740)
|
|
|
$
|
1,600
|
|
|
$
|
(8,340)
|
|
|
$
|
140,290
|
|
|
$
|
(49,490)
|
|
|
$
|
189,780
|
|
|
Net loss attributable to noncontrolling interest
|
|
380
|
|
|
60
|
|
|
320
|
|
|
670
|
|
|
580
|
|
|
90
|
|
|
1,320
|
|
|
1,040
|
|
|
280
|
|
|
(Income) loss from discontinued operations, net of tax
|
|
—
|
|
|
(2,990)
|
|
|
2,990
|
|
|
500
|
|
|
(6,770)
|
|
|
7,270
|
|
|
(182,240)
|
|
|
(14,000)
|
|
|
(168,240)
|
|
|
EBITDA from continuing operations
|
|
$
|
(2,570)
|
|
|
$
|
8,520
|
|
|
$
|
(11,090)
|
|
|
$
|
(5,570)
|
|
|
$
|
(4,590)
|
|
|
$
|
(980)
|
|
|
$
|
(40,630)
|
|
|
$
|
(62,450)
|
|
|
$
|
21,820
|
|
|
Adjustments pursuant to Term Loan Agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses on sale of receivables
|
|
250
|
|
|
430
|
|
|
(180)
|
|
|
540
|
|
|
960
|
|
|
(420)
|
|
|
1,170
|
|
|
1,840
|
|
|
(670)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash equity grant expenses
|
|
900
|
|
|
600
|
|
|
300
|
|
|
1,320
|
|
|
970
|
|
|
350
|
|
|
2,500
|
|
|
1,310
|
|
|
1,190
|
|
|
Other non-cash expenses or losses
|
|
220
|
|
|
600
|
|
|
(380)
|
|
|
1,750
|
|
|
5,570
|
|
|
(3,820)
|
|
|
1,210
|
|
|
36,790
|
|
|
(35,580)
|
|
|
Term Loans related fees, costs and expenses
|
|
—
|
|
|
1,300
|
|
|
(1,300)
|
|
|
—
|
|
|
3,040
|
|
|
(3,040)
|
|
|
(120)
|
|
|
3,040
|
|
|
(3,160)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender agent related professional fees, costs, and expenses
|
|
270
|
|
|
910
|
|
|
(640)
|
|
|
380
|
|
|
910
|
|
|
(530)
|
|
|
320
|
|
|
910
|
|
|
(590)
|
|
|
Non-recurring expenses or costs(a)
|
|
970
|
|
|
180
|
|
|
790
|
|
|
4,480
|
|
|
6,030
|
|
|
(1,550)
|
|
|
17,080
|
|
|
25,630
|
|
|
(8,550)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash losses on asset sales
|
|
20
|
|
|
(20)
|
|
|
40
|
|
|
90
|
|
|
(1,460)
|
|
|
1,550
|
|
|
1,240
|
|
|
340
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
(20)
|
|
|
(240)
|
|
|
220
|
|
|
(20)
|
|
|
(210)
|
|
|
190
|
|
|
660
|
|
|
(1,720)
|
|
|
2,380
|
|
|
Adjusted EBITDA
|
|
$
|
40
|
|
|
$
|
12,280
|
|
|
$
|
(12,240)
|
|
|
$
|
2,970
|
|
|
$
|
11,220
|
|
|
$
|
(8,250)
|
|
|
$
|
(16,570)
|
|
|
$
|
5,690
|
|
|
$
|
(22,260)
|
|
|
Non-recurring expense limitation(a)(b)
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
(7,080)
|
|
|
(15,630)
|
|
|
8,550
|
|
|
Other
|
|
20
|
|
|
240
|
|
|
(220)
|
|
|
20
|
|
|
210
|
|
|
(190)
|
|
|
(660)
|
|
|
1,720
|
|
|
(2,380)
|
|
|
Consolidated EBITDA
|
|
$
|
60
|
|
|
$
|
12,520
|
|
|
$
|
(12,460)
|
|
|
$
|
2,990
|
|
|
$
|
11,430
|
|
|
$
|
(8,440)
|
|
|
$
|
(24,310)
|
|
|
$
|
(8,220)
|
|
|
$
|
(16,090)
|
|
(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
The Company’s debt agreements do not require that we maintain a credit rating.
Outlook
The Company began 2020 with a strong performance and our operating results demonstrated strong demand for our products. However, the COVID-19 pandemic has caused significant business and economic disruption globally and resulted in economic uncertainty and challenges, both in the short term and long term. At this time, the Company’s main priority is the health of its employees and others in the communities where it does business and we are taking actions in response to the current environment. The Company has implemented risk mitigation plans across the enterprise to reduce the risk of spreading COVID-19 while continuing to operate to the extent possible. In accordance with mandates and other guidance from local governments and health authorities, as well as the World Health Organization and the Centers for Disease Control, the Company has taken the following measures:
–requiring administrative employees to work remotely;
–temporarily eliminating domestic and international travel;
–gating measures defined and implemented for essential workers to enter facilities;
–providing and requiring the use of personal protective equipment by all employees during working hours;
–requiring essential on-site employees to practice social distancing, including refraining from handshaking, hugging or other forms of physical greeting and maintaining 6 feet of distance from coworkers where possible;
–professionally sanitizing each facility on a regular basis;
–sanitizing equipment between uses;
–requiring frequent hand washing, including before and after the use of shared equipment;
–conducting temperature checks on employees at the start of each shift;
–ensuring availability of hand sanitizer at each facility and encouraging frequent application; and
–requiring employees to stay home if they are experiencing cold or flu-like symptoms.
The Company has the ability to manufacture and distribute its products across its various sales channels, and continues to operate and fill customer orders. The Company adhered to government mandated operational restrictions and flexed its operations in line with current and anticipated customer demand, and will continue to do so while prioritizing the health and safety of its employees and others in the communities where it operates. The customers in our original equipment manufacturers and original equipment servicers sales channels were those most affected by government mandated operational restrictions. However, substantially all of our customers resumed operational status, resulting in increasing demand with each successive month during the second quarter 2020.
The Company continues to operate its distribution facilities in the United States, including its facility in Edgerton, Kansas and has reopened its primary manufacturing facilities in North America and Europe, with substantially all of those facilities operating at or above 90%. We currently expect the operations of our remaining facilities to continue to improve in the near term as government mandated operating restrictions continue to be eased.
The extent and duration of the COVID-19 pandemic remains uncertain, as does the impact on our business. The level of economic recovery we may experience as we look forward is also unclear and we will continue to assess the operational and financial impacts of the pandemic on our business.
Impact of New Accounting Standards
See Note 2, New Accounting Pronouncements, included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” within this Quarterly Report on Form 10-Q.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles generally accepted within the United States of Americas (“US GAAP”). Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates that affect both the amounts and timing of the recording of assets, liabilities, net sales and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, our evaluation of business and macroeconomic trends, and information from other outside sources, as appropriate.
There were no material changes to the items that we disclosed as our critical accounting policies in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2019.
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. Based on the foregoing, we expect we will no longer qualify as an emerging growth company as of 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 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.