HZN Horizon Global Corp - 10-K

Item 1A.    Risk Factors

You should carefully consider each of the risks described below, together with information included elsewhere in this Annual Report on Form 10-K and other documents we file with the SEC. The risks that are highlighted below are not the only ones that we face. These risks and other forward-looking statements that relate to future events, expectations, trends and operating periods involve certain factors that are subject to change, and important risks and uncertainties that could cause actual results to differ materially. You should not interpret the disclosure of any risk factor to imply that the risk has not already materialized. Although the risks are organized by headings, and each risk is discussed separately, many are interrelated. If any of the following risks actually occur, our business, financial condition or results of operations could be negatively affected.

Risks Relating to the COVID-19 Pandemic

The COVID-19 pandemic has disrupted, and may continue to disrupt, our business, which could result in a material adverse impact to our business, results of operations, cash flow, liquidity and financial condition.

In December 2019, an outbreak of COVID-19 occurred in China and has since spread to other parts of the world. On March 11, 2020, the World Health Organization declared COVID-19 to be a global pandemic and recommended containment and mitigation measures. On March 13, 2020, the United States declared a national emergency concerning the outbreak. Along with these declarations, extraordinary and wide-ranging actions were taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions across the United States and the world, including quarantines, social distancing and “stay-at-home” orders, travel restrictions, mandatory business closures and other mandates that substantially restricted individuals’ daily activities and curtailed or ceased many businesses’ normal operations.

To date, the COVID-19 pandemic has surfaced in nearly all regions around the world, negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets. As a result, we have experienced, and may continue to experience, decreases in demand and customer orders for our products in all sales channels, as well as temporary disruptions and closures of some of our facilities due to decreased demand and government mandates. The COVID-19 pandemic has also impacted various aspects of the supply chain as our suppliers experience similar business disruptions due to operating restrictions from government mandates. We continue to monitor procurement of raw materials and components used in the manufacturing, distribution and sale of our products, but continued disruptions in the supply chain due to the COVID-19 pandemic may cause difficulty in sourcing materials or unexpected shortages or delays in delivery of raw materials and components, and may result in increased costs in our supply chain. We have implemented plans to reduce spending in certain areas of our business, including flexing variable labor, involuntary leave programs, reductions or delays in variable costs and investments, including capital expenditures, and may need to take additional actions to reduce spending in the future.

Generally, government restrictions have been lifted and economies have reopened; however, certain jurisdictions or regions may have to re-establish restrictions due to a resurgence in COVID-19 cases or otherwise, which could require us, our customers or our suppliers to close or limit operations. Accordingly, the ultimate shape of the economic recovery is uncertain. We will continue to closely monitor and assess the impact of the pandemic on our business, the extent of the impact on our liquidity to meet our short-term obligations and fund our business needs and growth, and our ability to meet financial covenants within our credit agreements. While we are closely monitoring the impact of the pandemic on all aspects of our business, the extent of the impact on our results of operations, cash flow, liquidity, and financial performance, as well as our ability to execute near- and long-term business strategies and initiatives, will depend on numerous evolving factors and future developments, which are highly uncertain and cannot be reasonably predicted, including: (a) the duration, severity and scope of the pandemic, including the resurgence of COVID-19 cases, particularly as variants of COVID-19 arise; (b) rapidly-changing governmental and public health mandates and guidance to contain and combat the outbreak; (c) the extent and duration of the pandemic’s adverse effect on economic and social activity, consumer confidence, discretionary spending and preferences, labor and healthcare costs, and unemployment rates, any of which may reduce demand for some of our products and impair the ability of those with whom we do business to satisfy their obligations to us; (d) our ability to sell and provide our services and products, including as a result of any restrictions, mandatory business closures, and any stay-at home or similar orders; (e) any temporary reduction in our workforce, closures of our offices and facilities, labor shortages, increased competition in the labor market and our ability to adequately staff and maintain our operations; (f) the ability of our customers and suppliers to continue their operations, which could result in terminations of contracts, losses of revenue, and further adverse effects to our supply chain; (g) any impairment in value of our tangible or intangible assets, which could be recorded as a result of weaker economic conditions; and (h) the potential effects on our internal controls, including as a result of changes in working environments and observing stay-at-home and similar orders that are applicable to our employees and business partners, among others. In addition, if the pandemic continues to create disruptions in the credit or financial markets, or impacts our credit ratings, it could adversely affect our ability to access capital on favorable terms and continue to meet our liquidity needs.

Given the inherent uncertainty surrounding the COVID-19 pandemic, the pandemic may have an adverse impact on our business, results of operations, cash flow, liquidity, and financial condition.

Risks Relating to Economic Conditions

Our businesses depend upon general economic conditions, and we serve some customers in highly cyclical industries; as such, we may be subject to the loss of sales and margins due to an economic downturn or recession.

Our financial performance depends, in large part, on conditions in the markets that we serve in both the U.S. and global economies. Some of the industries that we serve are highly cyclical, such as the agricultural, automotive, construction, horse/livestock, industrial, marine, military, recreational, trailer and utility markets. We may experience a reduction in sales and margins as a result of a downturn in economic conditions or other macroeconomic factors. Lower demand for our products may also negatively affect the capacity utilization of our production facilities, which may further reduce our operating margins.

Risks Relating to Our Business and Operations

Many of the markets we serve are highly competitive, which could limit the volume of products that we sell and reduce our operating margins.

Many of our products are sold in competitive markets. We believe that the principal points of competition in our markets are product quality and price, design and engineering capabilities, product development, conformity to customer specifications, reliability and timeliness of delivery, customer service and effectiveness of distribution. Maintaining and improving our competitive position will require our continued investment in manufacturing, engineering, quality standards, marketing, customer service and support of our distribution networks. We may have insufficient resources in the future to continue to make such investments and, even if we make such investments, we may not be able to maintain or improve our competitive position. We also face the risk of lower-cost foreign manufacturers located in China, Southeast Asia, India and other regions competing in the markets for our products, and we may be driven to increase our investment overseas as a consequence of this competition. Making overseas investments can be highly complicated and we may not always realize the advantages we anticipate from any such investments. Competitive pressure may limit the volume of products that we sell and reduce our operating margins.

We may not achieve our strategic goals for margin expansion, liquidity management and organic growth. Our past performance in these areas may not be indicative of future performance. Failure to achieve our strategic goals may adversely impact our results of operations.

Our strategic platforms for value creation and goals for margin expansion, liquidity management and organic growth are subject to risk and uncertainty and depend on general economic, credit, capital market and other conditions that are beyond our control and are subject to fluctuation. Our past performance with respect to margin expansion, liquidity management and organic growth should be considered independent from, and may not be a reliable indicator of, future performance. These strategic goals may need to be revised or may not be met for a number of reasons, including changes in general economic conditions in the United States and abroad, changes in credit and capital market conditions, increased competition in the markets for our products, increases in raw material or energy costs and changes in technology and manufacturing techniques.

Increases in our raw material or energy costs or the loss of critical suppliers could adversely affect our profitability and other financial results.

We are sensitive to price movements in our raw materials supply base. Our largest material purchases are for steel, copper and aluminum. The prices for these products have historically been volatile, fluctuate with worldwide market and economic conditions, import duties and tariffs, and may increase as a result of various factors, including: inflation and deflation rates; a reduction in the number of suppliers due to restructuring, bankruptcies and consolidations; declining supply due to mine or mill closures; and other factors that adversely impact supplier profitability, including increases in supplier operating expenses caused by rising raw material and energy costs. We may be unable to completely offset the impact with price increases on a timely basis due to outstanding commitments to our customers, competitive considerations or our customers’ resistance to accepting such price increases and our financial performance may be adversely impacted by further price increases. A failure by our suppliers to continue to supply us with certain raw materials or component parts on commercially reasonable terms, or at all, for any reason, including, without limitation, disruptions in our suppliers’ business due to cybersecurity incidents, terrorist activity, public health crises (such as the COVID-19 pandemic), fires, severe weather conditions (including those caused by climate change) or other natural disasters, could have a material adverse effect on us. To the extent there are energy supply disruptions or material fluctuations in energy costs, our margins could be materially adversely impacted.

In the past, the United States government has indicated its intent to alter its approach to trade policy, including, in some instances, to revise, renegotiate or terminate certain multilateral trade agreements and has also imposed new tariffs on certain foreign goods and raised the possibility of imposing additional increases or new tariffs on other goods. Such actions have, in some cases, led to retaliatory trade measures by certain foreign governments. Such policies could make it more difficult or costly for us to do business in or procure products from those countries. In turn, we may need to raise prices or make changes to our operations, which could negatively impact our revenue or operating results. At this time, it remains unclear what additional actions, if any, will be taken by the U.S. government or foreign governments with respect to tariff and international trade agreements and policies, and we cannot predict future trade policy or the terms of any revised trade agreements or any impact on our business.

Further, we procure a significant portion of our components from suppliers located in China, and we are therefore exposed to potential disruptions in deliveries from these suppliers due to political tensions with China, geopolitical risks, government-mandated facility closures in China due to energy shortages or other causes.

Transportation disruptions or increases in our freight cost could adversely affect our profitability and other financial results.

Because certain of our products are procured from international sources, including China, and imported into our manufacturing and distribution center locations around the world, if disruptions in our transportation network occur or our shipping costs substantially increase, we may be unable to sell or timely deliver our products, and our operating expenses could increase. We are dependent upon the transportation systems we use to ship our products, including various transportation modes of freight such as land, water and air. Our attempts to closely match our inventory levels to our product demand intensify the need for our transportation systems to function effectively and without delay.

The transportation network is subject to disruption or congestion from a variety of causes, including labor disputes or port strikes, acts of war or terrorism, natural disasters, and congestion resulting from higher shipping volumes. A port worker strike, work slow-down, or other transportation disruption in Long Beach, California, where we generally import our products to fulfill certain of our Horizon Americas operating segment orders, could significantly disrupt our business. Our international freight is regularly subjected to inspection by governmental entities. If our delivery times increase unexpectedly for these or any other reasons, our ability to deliver products on time would be materially adversely affected and result in delayed or lost revenue as well as customer imposed penalties. In addition, if increases in fuel prices occur, our transportation costs would likely increase. Moreover, the cost of shipping our products by air freight is greater than other methods. From time to time, we have shipped products using air freight to meet unexpected spikes and shifts in demand between product categories, to bring new product introductions to market quickly and to timely ship products previously ordered. If we rely more heavily upon air freight to deliver our products, our overall shipping costs will increase. A prolonged transportation disruption or a significant increase in the cost of freight could materially adversely affect our business, results of operations, and financial condition.

Our products are typically highly engineered or customer-driven and we are subject to risks associated with changing technology and manufacturing techniques that could place us at a competitive disadvantage.

We believe that our customers rigorously evaluate their suppliers on the basis of product quality, price competitiveness, technical expertise and development capability, new product innovation, reliability and timeliness of delivery, product design capability, manufacturing expertise, operational flexibility, customer service and overall management. Our success depends on our ability to continue to meet our customers’ changing expectations with respect to these criteria. We anticipate that we will remain committed to product research and development, advanced manufacturing techniques and service to remain competitive, which entails significant costs. We may be unable to address technological advances, implement new and more cost-effective manufacturing techniques, or introduce new or improved products, whether in existing or new markets, so as to maintain our businesses’ competitive positions or to grow our businesses as desired.

A portion of our sales is derived from international sources, which exposes us to certain risks which may adversely affect our business and our financial results.

We have operations outside of the United States. For the twelve months ended December 31, 2021, 43.2% of our net sales were derived from sales by our subsidiaries located outside of the United States. In addition, we may expand our international operations through internal growth and acquisitions. International operations, particularly sales to emerging markets and manufacturing in non-U.S. countries, are subject to risks which are not present within U.S. markets, which include, but are not limited to, the following:

• changes in local government regulations and policies including, but not limited to, governmental embargoes, repatriation of earnings, expropriation of property, duty or tariff restrictions, investment limitations and tax policies;

• changes in local economic conditions;

• political and economic instability and disruptions, including labor unrest, civil strife, acts of war, guerrilla activities, insurrection and terrorism;

• legislation that regulates the use of chemicals;

• disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the Foreign Corrupt Practices Act (“FCPA”);

• compliance with international trade laws and regulations, including import and export control and economic sanctions, such as anti-dumping duties and countervailing duties, and/or government authorities that may question our international trade and/or customs positions or change their laws in a manner that may impact our business, financial results or operating cash flows;

• difficulties in staffing and managing multi-national operations;

• limitations on our ability to enforce legal rights and remedies;

• tax inefficiencies in repatriating cash flow from non-U.S. subsidiaries that could affect our financial results and reduce our ability to service debt;

• reduced protection of intellectual property rights;

• increasingly complex laws and regulations concerning privacy and data security, including the European Union’s General Data Protection Regulation;

• the impacts from the ongoing conflict between Russia and Ukraine;

• the impacts related to the United Kingdom’s withdrawal from the European Union; and

• other risks arising out of foreign sovereignty over the areas where our operations are conducted.

We are also exposed to risks relating to U.S. policy with respect to companies doing business in foreign jurisdictions . Changes in laws or policies governing the terms of foreign trade, in particular increased trade restrictions, tariffs or taxes on import from countries where we procure or manufacture products, such as China and Mexico, could have a material adverse effect on our business and results of operations. For instance, the U.S. and Chinese governments have imposed a series of significant incremental retaliatory tariffs to certain imported goods. With respect to the automotive industry, the U.S. imposed tariffs on imports of certain steel, aluminum and automotive components, with China imposing retaliatory tariffs on certain automotive components. Given the uncertainty regarding the duration of the imposed tariffs, as well as the potential for additional tariffs by the United States, China or other countries, as well as other changes in tax policy, trade regulations or trade agreements, and the Company’s ability to implement strategies to mitigate the impact of changes in tax policy, tariffs or other trade regulations, our exposure to the risks described above could have a material adverse effect on our business and results of operations.

Our international sales and operations are also sensitive to changes in foreign national priorities, as well as to political and economic instability. For example, our business in Europe or elsewhere may be impacted by an escalation of tensions between Russia and Ukraine and any economic or trade sanctions enacted to condemn or counteract any Russian aggression towards or invasion of the Ukraine. Any such conflict may also impact our ability to secure raw materials and exacerbate the supply chain disruption we have experienced and further limit our ability to secure certain raw materials or services. Further military action or cyberattacks by Russia to counteract any sanctions may have an impact on demand for our goods and services and adversely impact our results of operation. Our success as a global business will depend, in part, upon our ability to succeed in differing legal, regulatory, economic, social and political conditions by developing, implementing and maintaining policies and strategies that are effective in each location where we do business

Although our financial results are reported in U.S. dollars, a portion of our sales and operating costs are realized in foreign currencies. Our sales and profitability are impacted by the movement of the U.S. dollar against foreign currencies in the countries in which we generate sales and conduct operations. Long-term fluctuations in relative currency values could have an adverse effect on our operations and financial condition.

In addition, we could be adversely affected by violations of the FCPA and similar worldwide anti-bribery laws as well as export controls and economic sanction laws. The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Although we have internal control policies and procedures designed to ensure compliance with these anti-bribery laws, there can be no assurance that our policies and procedures will protect us from acts committed by employees, agents or business partners of ours (or of businesses we acquire or partner with) that would violate these laws. Any violation could cause an adverse effect on operations and financial conditions. Additionally, we rely on our suppliers to adhere to our supplier standards of conduct and material violations of such standards of conduct could occur that could have a material effect on our financial condition.

A future impairment of our intangible assets could have a material negative impact on our financial results.

As of December 31, 2021, our intangible assets were $48.9 million and represented 11% of our total assets. If we experience declines in sales and operating profit or do not meet our current and forecasted operating budget, we may be subject to future impairment charges. Because of the significance of these assets, any future impairment could have a material adverse effect on our financial results.

Risks Relating to Human Capital

We depend on the services of key individuals, the loss of which could materially harm us.

Our success will depend, in part, on the efforts of our senior management. Our future success will also depend on, among other factors, our ability to attract, develop and retain other qualified personnel. The loss of the services of any of our key employees or the failure to attract or retain qualified employees could have a material adverse effect on us.

We may be subject to further unionization and work stoppages at our facilities or our customers may be subject to work stoppages, which could seriously impact the profitability of our business.

As of December 31, 2021, 68% of our work force was unionized under several different unions. We are not aware of any present active union organizing drives at any of our other facilities. We cannot predict the impact of any further unionization of our workplace. Future labor disagreements could result in work stoppages. Any prolonged work stoppages at any of our facilities could have a material adverse effect on our business.

Many of our direct or indirect customers have unionized work forces. Strikes, work stoppages or slowdowns experienced by these customers or their suppliers could result in slowdowns or closures of assembly plants where our products are included. In addition, organizations responsible for shipping our customers’ products may be impacted by occasional strikes or other activity. Any interruption in the delivery of our customers’ products could reduce demand for our products and could have a material adverse effect on us.

Our healthcare costs for active employees and future retirees may exceed our projections and may negatively affect our financial results.

We provide healthcare benefits for active employees through comprehensive hospital, surgical and major medical benefit provisions, all of which are subject to various cost-sharing features. If our costs under our benefit programs for active employees exceed our projections, our business and financial results could be materially adversely affected. Additionally, foreign competitors and many domestic competitors provide fewer benefits to their employees, and this difference in cost could adversely impact our competitive position.

Risks Relating to Intellectual Property

We may face liability associated with the use of products for which patent ownership or other intellectual property rights are claimed.

We may be subject to claims or inquiries regarding alleged unauthorized use of a third party’s intellectual property. An adverse outcome in any intellectual property litigation could subject us to significant liabilities to third parties, require us to license technology or other intellectual property rights from others, require us to comply with injunctions to cease marketing or using certain products or brands, or require us to redesign, re-engineer, or re-brand certain products or packaging, any of which could affect our business, financial condition and operating results. If we are required to seek licenses under patents or other intellectual property rights of others, we may not be able to acquire these licenses on acceptable terms, if at all. In addition, the cost of responding to an intellectual property infringement claim, in terms of legal fees and expenses and the diversion of management resources, whether or not the claim is valid, could have a material adverse effect on our business, results of operations and financial condition.

We may be unable to adequately protect our intellectual property.

While we believe that our patents, trademarks and other intellectual property have significant value, it is uncertain that this intellectual property or any intellectual property acquired or developed by us in the future, will provide a meaningful competitive advantage. Our patents or pending applications may be challenged, invalidated or circumvented by competitors or rights granted thereunder may not provide meaningful proprietary protection. Moreover, competitors may infringe on our patents or successfully avoid them through design innovation. Policing unauthorized use of our intellectual property is difficult and expensive, and we may not be able to, or have the resources to, prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States. The cost of protecting our intellectual property may be significant and could have a material adverse effect on our financial condition and future results of operations.

Risks Relating to Financial Matters

We have a substantial amount of debt. To service our debt, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control. If we cannot generate the required cash, we may not be able to make the necessary payments required under our debt.

As of December 31, 2021, we had total gross debt of $300.9 million (without giving effect to the equity component of our convertible senior notes or any debt discount). Our ability to make payments on our debt, fund our other liquidity needs, and make planned capital expenditures will depend on our ability to generate cash in the future. Our historical financial results have

been, and we anticipate that our future financial results will be, subject to fluctuations. Our ability to generate cash, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot guarantee that our business will generate sufficient cash flow from our operations or that future borrowings will be available to us in an amount sufficient to enable us to make payments of our debt, fund other liquidity needs and make planned capital expenditures. Additionally, we cannot guarantee that we will be able to refinance any of our debt on commercially acceptable terms, or at all.

The degree to which we are currently leveraged could have important consequences for shareholders. For example, it could:

• require us to dedicate a substantial portion of our cash from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, capital expenditures, acquisition and other general corporate purposes;

• increase our vulnerability to adverse economic or industry conditions;

• limit our ability to obtain additional financing in the future on acceptable terms and conditions to enable us to react to changes in our business; or

• place us at a competitive disadvantage compared to businesses in our industry that have less debt.

Additionally, any failure to comply with covenants in the instruments governing our debt could result in an event of default which, if not cured or waived, would have a material adverse effect on us.

The terms of the agreements governing our revolving credit facility and our term loan restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

The terms of the agreements governing our revolving credit facility and our term loan contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to:

• incur additional indebtedness and guarantee indebtedness;

• pay dividends or make other distributions or repurchase or redeem capital stock;

• prepay, redeem or repurchase certain debt;

• issue certain preferred stock or similar equity securities;

• make loans and investments;

• sell assets;

• incur liens;

• enter into transactions with affiliates;

• alter the businesses we conduct;

• enter into agreements restricting our subsidiaries’ ability to pay dividends; and

• consolidate, merge or sell all or substantially all of our assets.

In addition, the restrictive covenants in the agreements governing our revolving credit facility and our term loan require us to maintain specified financial ratios and satisfy other financial condition tests. Although we entered into amendments to the agreements governing our debt in recent years to, among other things, provide for a relaxation of certain of our financial covenants, our ability to meet the financial ratios and tests can be affected by events beyond our control, and we may be unable to meet them.

A breach of the covenants or restrictions under agreements governing our revolving credit facility and our term loan could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the agreement governing our revolving credit facility would permit the lenders under our

revolving credit facility to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay the amounts due and payable under our revolving credit facility and our term loan, those lenders could proceed against the collateral granted them to secure that indebtedness. In the event our lenders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. As a result of these restrictions, we may be:

• limited in how we conduct our business;

• unable to raise additional debt or equity financing to operate during general economic or business downturns; and

• unable to compete effectively or to take advantage of new business opportunities.

These restrictions may affect our ability to grow in accordance with our strategy. In addition, our financial results, our substantial indebtedness and our credit ratings could adversely affect the availability and terms of our financing.

Our access to new capital may be impacted by fluctuations in interest rates.

As part of our ongoing business, we are exposed to certain market risks, including fluctuations in interest rates and uncertainty regarding Federal Reserve policies. An increase in interest rates may result in tighter capital markets, increasing the cost and reducing the availability of debt financing. Restricted access to debt financing could impact that availability of working capital and may adversely affect us.

We have significant operating lease obligations and our failure to meet those obligations could adversely affect our financial condition.

We lease many of our manufacturing facilities and certain capital equipment. Our rent expense in 2021 under these operating leases was $14.5 million. A failure to pay our rental obligations would constitute a default allowing the applicable landlord to pursue any remedy available to it under applicable law, which would include taking possession of our property and, in the case of real property, evicting us. These leases are categorized as operating leases and are not considered indebtedness for purposes of our debt instruments.

Risks Relating to Legal and Regulatory Matters

We may incur material losses and costs as a result of product liability, recall and warranty claims that may be brought against us.

A significant product liability lawsuit, warranty claim or product recall involving us could adversely affect our financial performance. In the event that our products fail to perform as expected, regardless of fault, and such failure results in, or is alleged to result in, bodily injury and/or property damage or other losses, we may be subject to product liability lawsuits and other claims or we may be required to participate in a recall or other corrective action involving such products. Further, any product liability or warranty issues may adversely affect our reputation as a manufacturer of high-quality, safe products, divert management’s attention, and could have a material adverse effect on our business.

We currently carry insurance and maintain reserves for product liability, warranty claims and product recall. However, our insurance coverage may be inadequate if such claims do arise and any liability not covered by insurance could have a material adverse effect on our business. Although we have been able to obtain insurance in amounts we believe to be appropriate to cover such liability to date, our insurance premiums may increase in the future as a consequence of conditions in the insurance business generally or our situation in particular. Any such increase could result in lower net income or cause the need to reduce our insurance coverage. Any product liability claim may also include the imposition of punitive damages, the award of which, pursuant to certain state laws, may not be covered by insurance. Our product liability insurance policies have limits that, if exceeded, may result in material costs that could have an adverse effect on our future profitability. In addition, warranty claims are generally not covered by our product liability insurance.

Our business may be materially and adversely affected by compliance obligations and liabilities under environmental laws and regulations.

We are subject to stringent environmental laws and regulations at the local, state, national and international levels, and existing and any new laws and regulations, including those relating to air emissions, wastewater discharges and chemical and hazardous waste management, could affect our general business operations. Some of these environmental laws hold owners or operators of land or businesses liable for their own and for previous owners’ or operators’ releases of hazardous or toxic substances or

wastes. Other environmental laws and regulations require the obtainment and compliance with environmental permits. To date, costs of complying with environmental, health and safety requirements have not been material. However, the nature of our operations and our long history of industrial activities at certain of our current or former facilities, as well as those acquired, could potentially result in material environmental liabilities.

While we must comply with existing and pending climate change legislation, regulation and international treaties or accords, current laws and regulations have not had a material impact on our business, capital expenditures or financial position. We cannot assess the financial or operational impact of future regulatory changes; however, future events, including those relating to climate change or greenhouse gas regulation, could require us to incur expenses related to the modification or curtailment of operations, installation of pollution control equipment or investigation and cleanup of contaminated sites.

Changes in laws or regulations or the manner of their interpretation or enforcement could adversely impact our financial performance and restrict our ability to operate our business or execute our strategies.

New laws or regulations, or changes in existing laws or regulations, or the manner of their interpretation or enforcement, could increase our cost of doing business and restrict our ability to operate our business or execute our strategies. In particular, there may be significant changes in U.S. laws and regulations and existing international trade agreements by the current U.S. presidential administration that could affect a wide variety of industries and businesses, including those businesses we own and operate. If the current U.S. presidential administration materially modifies U.S. laws and regulations and international trade agreements, our business, financial condition, and results of operations could be adversely affected.

We could be adversely affected by changes to federal, state, and local tax laws due to changes in compliance requirements. We are subject to extensive tax liabilities imposed by multiple jurisdictions, including but not limited to income taxes, indirect taxes (such as excise, sales & use, and gross receipts taxes), payroll taxes, and property taxes. Tax laws and regulations are dynamic and subject to change as new laws are passed and new interpretations of existing laws are issued and applied. The activity could result in increased expenditures for tax liabilities in the future. Many of these liabilities are subject to periodic audits by the respective taxing authorities. Subsequent changes to our tax liabilities as a result of these audits may subject us to interest and penalties, which could have a material effect on our financial condition and results of operations.

We may be exposed to certain regulatory and financial risks related to climate change.

Growing concerns about climate change may result in the imposition of additional regulations or restrictions to which we may become subject. A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to climate change, including regulating greenhouse gas emissions. The outcome of new legislation or regulation in the U.S. and other jurisdictions in which we operate may result in new or additional requirements, additional charges to fund energy efficiency activities, and fees or restrictions on certain activities. Compliance with these climate change initiatives may also result in additional costs to us, including, among other things, increased production costs, additional taxes, reduced emission allowances or additional restrictions on production or operations. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations. Even without such regulation, increased public awareness and adverse publicity about potential impacts on climate change emanating from us or our industry could harm us. We may not be able to recover the cost of compliance with new or more stringent laws and regulations, which could adversely affect our business and negatively impact our growth. Furthermore, the potential impact of climate change and related regulation on our customers is highly uncertain and there can be no assurance that it will not have an adverse effect on our financial condition and results of operations.

Risks Relating to Cybersecurity

Increased information technology security threats and more sophisticated and targeted computer crime could pose a risk to our systems, networks, and products.

We collect, store, have access to and otherwise process certain confidential or sensitive data, including proprietary business information, personal data or other information that is subject to U.S. or international privacy and security laws, regulations and/or customer-imposed controls. Increased global information technology security threats and more sophisticated and targeted computer crime pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data and communications. While we attempt to mitigate these risks by employing a number of measures, monitoring of our networks and systems, and maintenance of backup and protective systems, our systems, networks and products remain potentially vulnerable to compromise from advanced persistent threats, employee malfeasance, human or technological error, and other cybersecurity threats. Depending on their nature and scope, such threats could potentially lead to

the compromising of confidential information and communications, improper use of our systems and networks, manipulation and destruction of data, defective products, production downtimes and operational disruptions, which in turn could adversely affect our reputation, customer relationships, competitiveness and results of operations. We may be required to incur significant costs to remedy damages caused by these disruptions or security breaches or to protect against disruption or security breaches in the future. We have cybersecurity insurance related to a breach event covering expenses for notification, credit monitoring, investigation, crisis management, public relations and legal advice. However, damage and claims arising from such incidents may not be covered or may exceed the amount of any insurance available, or may result in increased cybersecurity and other insurance premiums.

A major disruption or failure of our information systems could harm our business.

We depend on integrated information systems to conduct our business. We may experience operating problems with our information systems as a result of system disruptions, failures, viruses, computer hackers or other causes. Any significant disruption or slowdown of our systems could cause customers to cancel orders or cause standard business processes to become inefficient or ineffective. An extended interruption of standard business processes may affect our profitability and financial position.

Risks Relating to the Spin-off

We remain subject to continuing indemnification liabilities in connection with the Spin-off.

We entered into a separation and distribution agreement with TriMas that provides for, among other things, the principal corporate transactions required to affect the Spin-off, certain conditions to the Spin-off and provisions governing the relationship between our company and TriMas with respect to and resulting from the Spin-off. Among other things, the separation and distribution agreement provides for indemnification obligations designed to make us financially responsible for substantially all liabilities that may exist relating to our Cequent business activities, whether incurred prior to or after the Spin-off, as well as those obligations of TriMas assumed by us pursuant to the separation and distribution agreement. If we are required to indemnify TriMas under the circumstances set forth in the separation and distribution agreement, we may be subject to substantial liabilities.

Moreover, pursuant to the separation and distribution agreement, TriMas agreed to indemnify us for certain liabilities. However, third parties could seek to hold us responsible for any of the liabilities that TriMas has agreed to retain, and there can be no assurance that the indemnity from TriMas will be sufficient to protect us against the full amount of such liabilities, or that TriMas will be able to fully satisfy its indemnification obligations. Even if we ultimately succeed in recovering from TriMas any amounts for which we are held liable, we may be temporarily required to bear these liabilities ourselves. If TriMas is unable to satisfy its indemnification obligations, the underlying liabilities could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Further, TriMas’ insurers may deny coverage to us for liabilities associated with occurrences prior to the Spin-off. Even if we ultimately succeed in recovering from such insurance providers, we may be required to temporarily bear such loss of coverage.

Risks Relating to Our Common Stock and Convertible Notes

While we are currently in compliance with the NYSE's minimum market capitalization requirement, we could be at risk of being out of compliance and of the NYSE delisting our common stock, which would have an adverse impact on the trading volume, liquidity and market price of our common stock.

On April 30, 2020, we were notified by the New York Stock Exchange (the “NYSE”) that we were not in compliance with the continued listing standard set forth in Section 802.01B of the NYSE Listed Company Manual because our average market capitalization was less than $50 million over a consecutive 30 trading-day period and our stockholders’ equity was less than $50 million. We submitted a plan to the NYSE indicating our intention to seek to cure the market capitalization condition by executing a strategic plan, which resulted in improved operational and financial performance that ultimately led to a recovery of our common stock price and market capitalization and our once again being in compliance with the minimum market capitalization requirement. While we have cured this deficiency and regained compliance with this continued listing standard, there can be no assurance that we will be able to continue to comply with this and other continued listing standards of the NYSE.

A delisting of our common stock from the NYSE could negatively impact us as it would likely reduce the liquidity and market price of our common stock; reduce the number of investors willing to hold or acquire our common stock, and negatively impact our ability to access equity markets and obtain financing.

Our issuance of any additional shares of our common stock, including pursuant to the exercise of instruments convertible into or exercisable for shares of our common stock, or the issuance of additional instruments convertible into or exercisable for shares of our common stock, could materially and adversely affect the market price of our common stock.

In February 2017, we issued $125.0 million aggregate principal amount of 2.75% Convertible Senior Notes due 2022 (the “Convertible Notes”). The Convertible Notes may be settled in cash, shares of common stock or a combination of cash and shares of common stock, at our option. In the future, we may issue additional shares of our common stock or other instruments convertible into, or exchangeable or exercisable for, shares of our common stock. The Convertible Notes issuance, and any future issuance of shares of our common stock or instruments convertible into, or exercisable or exchangeable into, shares of our common stock, may materially and adversely affect the market price of our common stock.

In connection with the issuance of a term loan in 2019, we issued detachable warrants to purchase up to 6.25 million shares of our common stock, which can be exercised on a cashless basis over a five-year term with an exercise price of $1.50 per share. In addition, in connection with the issuance of our term loan in February 2021, we issued detachable warrants to purchase up to 3.91 million shares of our common stock, which can be exercised on a cashless basis over a five-year term with an exercise price of $9.00 per share. In February 2022, in connection with an amendment to our term loan, we also issued detachable warrants to purchase up to 0.98 million shares of our common stock, which, after we obtain shareholder approval, can be exercised on a cashless basis over a five-year term with an exercise price of $9.00 per share. The warrants could have a dilutive effect on our common stock to the extent that the market price per share of our common stock exceeds the strike price of the warrants.

In particular, a substantial number of shares of our common stock are reserved for issuance upon conversion of the Convertible Notes upon exercise and settlement or termination of the warrants that we entered into in connection with the Convertible Notes offering and term loans, and upon the exercise of stock options, the vesting of restricted stock awards and deferred restricted stock units to our employees. We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock. The issuance and sale of substantial amounts of shares of our common stock, or the perception that such issuances and sales may occur, could adversely affect the market price of our common stock and impair our ability to raise capital through the sale of additional equity or equity-linked securities.

The conditional conversion features of our Convertible Notes, if triggered, may adversely affect our financial condition.

In the event the conditional conversion features of the Convertible Notes are triggered, holders of the Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at their option. If one or more holders elect to convert their Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock, we would be required to make cash payments to satisfy all or a portion of our conversion obligation based on the conversion rate, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which could result in a material reduction of our net working capital.

The convertible note hedge transactions (“Convertible Note Hedges”) and warrant transactions (“Warrants”) that we entered into in connection with the offering of our Convertible Notes may affect the value of the Convertible Notes and our common stock.

In connection with the offering of the Convertible Notes, we entered into convertible note hedge transactions with certain option counterparties. The Convertible Note Hedges are expected generally to reduce the potential dilution upon conversion of the Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Convertible Notes, as the case may be. We also entered into warrant transactions with each option counterparty. The Warrants could separately have a dilutive effect on our common stock to the extent that the market price per share of our common stock exceeds the strike price of the Warrants. In connection with establishing its initial hedge of the Convertible Note Hedges and Warrants, each option counterparty or an affiliate thereof may have entered into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the Convertible Notes. This activity could increase (or reduce the size of any decrease in) the market price of our common stock or the Convertible Notes at that time. In addition, each option counterparty or an affiliate thereof may modify its hedge position by entering into or unwinding various derivatives with

respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Convertible Notes (and is likely to do so during any observation period related to a conversion of the Convertible Notes). This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the Convertible Notes. In addition, if any such Convertible Note Hedges and Warrants fail to become effective, each option counterparty may unwind its hedge position with respect to our common stock, which could adversely affect the value of our common stock and the value of the Convertible Notes.

General Risk Factors

Our stock price may be subject to significant volatility due to our own results or market trends.

If our revenue, earnings or cash flows in any quarter fail to meet the investment community’s expectations, there could be an immediate negative impact on our stock price. Our stock price could also be impacted by broader market trends and world events unrelated to our performance.

We may issue preferred stock with terms that could dilute the voting power or reduce the value of our common stock.

Our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock respecting dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of our common stock.

Anti-takeover provisions contained in our Amended and Restated Certificate of Incorporation, as amended, or our “certificate of incorporation,” and Amended and Restated Bylaws, or our “bylaws,” as well as provisions of Delaware law, could impair a takeover attempt that stockholders may consider favorable.

Our certificate of incorporation and bylaws provisions, as amended and restated, may have the effect of delaying, deferring or discouraging a prospective acquiror from making a tender offer for our common stock or otherwise attempting to obtain control of us. These provisions, among other things, establish that our board of directors fixes the number of members of the board and establish advance notice requirements for nomination of candidates for election to the board or for proposing matters that can be acted on by stockholders at stockholder meetings. To the extent that these provisions discourage takeover attempts, they could deprive stockholders of opportunities to realize takeover premiums for their shares of common stock. Moreover, these provisions could discourage accumulations of large blocks of our common stock, thus depriving stockholders of any advantages that large accumulations of common stock might provide.

As a Delaware corporation, we will also be subject to provisions of Delaware law, including Section 203 of the General Corporation Law of the State of Delaware. Section 203 prevents some stockholders holding more than 15% of our voting stock from engaging in certain business combinations unless the business combination or the transaction that resulted in the stockholder becoming an interested stockholder was approved in advance by our board of directors, results in the stockholder holding more than 85% of our voting stock, subject to certain restrictions, or is approved at an annual or special meeting of stockholders by the holders of at least 66 2/3 % of our voting stock not held by the stockholder engaging in the transaction.

Any provision of our certificate of incorporation or our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition contains forward-looking statements regarding industry outlook and our expectations regarding the performance of our business. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under the heading “Forward-Looking Statements,” at the beginning of this Annual Report on Form 10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

You should read the following discussion together with Item 8, “Financial Statements and Supplementary Data” within this Annual Report on Form 10-K.

Overview

Headquartered in Plymouth, Michigan, Horizon Global Corporation and its consolidated subsidiaries (“Horizon,” “Horizon Global,” “we,” “our,” or the “Company”) are a leading designer, manufacturer and distributor of a wide variety of high-quality, custom-engineered towing, trailering, cargo management and other related accessory products in the North American, European and African markets, primarily servicing the aftermarket, automotive original equipment manufacturers (“automotive OEMs”) and automotive original equipment servicers (“automotive OESs”) (collectively, “OEs”), retail, e-commerce and industrial channels, supporting our customers generally through a regional service and delivery model.

Critical factors affecting our ability to succeed include:

• Our ability to realize the expected future economic benefits resulting from the changes made to our manufacturing operations, distribution footprint and management team in recent years, including the implementation of operational improvement initiatives, which are continuously ongoing to support margin expansion;

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

• Our ability to quickly and cost-effectively introduce new products to our customers and end-user market with a resulting streamlined customer service model and improved operating margins;

• Our ability to continue to successfully launch new products and customer programs to expand or realign our geographic coverage or distribution channels and realize desired operating efficiencies and product line or customer content penetration;

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

• Our ability to manage liquidity and other economic and business uncertainties, including those related to the global microchip shortage, ongoing global shipping container and other transportation and logistics constraints, as well as the COVID-19 pandemic that may result in future business disruption, including any mandated operating restrictions such as temporary facility closures.

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

Horizon Global reports its business in two operating segments: Horizon Americas and Horizon Europe‑Africa. See Note 15, Segment Information , included in Item 8, “ Financial Statements and Supplementary Data,” within this Annual Report on Form 10-K for further description of the Company’s operating segments.

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

Supplemental Analysis and Segment Information

Non-GAAP Financial Measures

The Company’s management utilizes Adjusted EBITDA as the key measure of company and segment performance and for planning and forecasting purposes, as management believes this measure is most reflective of the operational profitability or loss of the Company and its operating segments and provides management and investors with information to evaluate the operating performance of its business and is representative of its performance used to measure certain of its financial covenants, further discussed in the Liquidity and Capital Resources section below. Adjusted EBITDA should not be considered a substitute for results prepared in accordance with U.S. GAAP and should not be considered an alternative to net income attributable to Horizon Global, which is the most directly comparable financial measure to Adjusted EBITDA that is prepared in accordance with U.S. GAAP. Adjusted EBITDA, as determined and measured by Horizon Global, should also not be compared to similarly titled measures reported by other companies. The Company also uses operating profit (loss) to measure stand-alone segment performance.

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

Adjusted EBITDA for our operating segments for the twelve months ended December 31, 2021 is as follows:

Twelve Months Ended

December 31, 2021

Horizon Americas

Horizon Europe-Africa

Corporate

Consolidated

(dollars in thousands)

Net loss attributable to Horizon Global

Net loss attributable to noncontrolling interest

Net loss

Interest expense

Income tax benefit

Depreciation and amortization

EBITDA

Net loss attributable to noncontrolling interest

Severance

Restructuring, relocation and related business disruption costs

Loss on extinguishment of debt

Non-cash stock compensation

Loss on business divestitures and other assets

Debt issuance costs

Gain on extinguishment of debt

Unrealized foreign currency remeasurement costs

Adjusted EBITDA

Adjusted EBITDA for our operating segments for the twelve months ended December 31, 2020 is as follows:

Twelve Months Ended

December 31, 2020

Horizon Americas

Horizon Europe-Africa

Corporate

Consolidated

(dollars in thousands)

Net loss attributable to Horizon Global

Net loss attributable to noncontrolling interest

Net loss

Interest expense

Income tax benefit

Depreciation and amortization

EBITDA

Net loss attributable to noncontrolling interest

Loss from discontinued operations, net of tax

Severance

Restructuring, relocation and related business disruption costs

Non-cash stock compensation

Loss (gain) on business divestitures and other assets

Board transition support

Product liability and litigation claims

Debt issuance costs

Unrealized foreign currency remeasurement costs

Adjusted EBITDA

Segment Information

A summary of segment financial information for our operating segments for the twelve months ended December 31, 2021 and 2020 is as follows:

Twelve Months Ended December 31,

Change

Constant Currency Change

As a Percentage of Net Sales

As a Percentage of Net Sales

(dollars in thousands)

Net Sales

Horizon Americas

Horizon Europe‑Africa

Total

Gross Profit

Horizon Americas

Horizon Europe‑Africa

Total

Selling, General and Administrative Expense

Horizon Americas

Horizon Europe‑Africa

Corporate

Total

Operating Profit (Loss)

Horizon Americas

Horizon Europe‑Africa

Corporate

Total

Capital Expenditures

Horizon Americas

Horizon Europe‑Africa

Corporate

Total

Depreciation of Property and Equipment and Amortization of Intangibles

Horizon Americas

Horizon Europe‑Africa

Corporate

Total

Adjusted EBITDA

Horizon Americas

Horizon Europe-Africa

Corporate

Total

Results of Operations

Twelve Months Ended December 31, 2021 Compared with Twelve Months Ended December 31, 2020

Consolidated net sales increased $120.9 million, or 18.3%, to $782.1 million during the twelve months ended December 31, 2021, as compared to $661.2 million during the twelve months ended December 31, 2020. The increase was driven by higher net sales in Horizon Americas and Horizon Europe‑Africa primarily attributable to the impacts of economic uncertainty and business disruptions of the COVID-19 pandemic that impacted the Company in 2020, most significantly in the first and second quarters. Net sales for Horizon Americas increased $74.0 million, driven by increases in sales volumes as well as pricing recovery initiatives driven by commodity and input cost increases. Net sales for Horizon Europe‑Africa increased $46.9 million, driven by increases in sales volumes and pricing recovery initiatives as well as favorable currency translation.

Gross profit margin (gross profit as a percentage of net sales) was 18.2% during the twelve months ended December 31, 2021 and 2020. Gross profit margin in 2021 as compared to 2020 was impacted by higher net sales in Horizon Americas and Horizon Europe‑Africa as detailed above, coupled with favorable net sales channel mix and was partially offset by unfavorable cost performance, primarily attributable to unfavorable material, supply chain and other manufacturing input costs associated with global macroeconomic factors experienced during 2021.

Selling, general and administrative (“SG&A”) expenses increased $7.9 million, primarily attributable to $3.3 million of higher personnel and other variable compensation costs across the Company, driven primarily by temporary salary reductions in the U.S. and the Company’s participation in certain payroll reimbursement programs during 2020 in response to the impacts of the COVID-19 pandemic. The increase was also due to $3.8 million of higher outside professional fees and other administrative costs across the Company. Unfavorable currency translation in Horizon Europe‑Africa of $1.8 million also contributed to the increase.

Operating margin (operating profit (loss) as a percentage of net sales) was 0.9% and (1.0)% during the twelve months ended December 31, 2021 and 2020, respectively. Operating profit improved $14.1 million, or 204.5%, to an operating profit of $7.2 million during 2021, as compared to an operating loss of $(6.9) million during 2020. Improved operating profit and operating margin were primarily due to the operational results detailed above.

Other expense, net increased $7.9 million to $8.4 million during the twelve months ended December 31, 2021, as compared to $0.5 million during the twelve months ended December 31, 2020, primarily attributable to $(4.1) million of foreign currency loss during 2021 as compared to $0.9 million of foreign currency gain during 2020. The increase was also due to the $2.2 million loss on the sale of the Company’s Brazil business completed during the second quarter of 2021. Refer to Note 5, Goodwill and Other Intangible Assets, in Item 8, “ Financial Statements and Supplementary Data,” within this Annual Report on Form 10-K for additional information of the sale of the Company’s Brazil business.

Interest expense decreased $3.7 million to $28.0 million during the twelve months ended December 31, 2021, as compared to $31.7 million during the twelve months ended December 31, 2020, primarily as a result of the Company’s February 2021 refinancing, which resulted in a new term loan agreement that replaced the Company’s existing term loan agreement. The new term loan included a lower interest rate and removed paid-in-kind interest, resulting in lower interest expense for the twelve months ended December 31, 2021. Additionally, during 2021, the Company also incurred an $11.7 million loss on debt extinguishment related to the termination of the existing term loan agreement resulting from the February 2021 refinancing and a $7.5 million gain on debt extinguishment related to forgiveness of the Company’s PPP Loan, as defined below. Refer to Note 9, Long-term Debt , in Item 8, “ Financial Statements and Supplementary Data,” within this Annual Report on Form 10-K for additional information.

The effective income tax rate for the twelve months ended December 31, 2021 and 2020 was 0.5% and 4.0%, respectively. The lower effective income tax rate for both periods is attributable to the Company’s valuation allowance recorded in the U.S. and several foreign jurisdictions, which resulted in no income tax benefit recognized for jurisdictional pretax losses, coupled with jurisdictional income mix.

Net loss from continuing operations improved $4.4 million to a net loss of $(33.1) million for the twelve months ended December 31, 2021, compared to a net loss from continuing operations of $(37.5) million for the twelve months ended December 31, 2020. The improvement was attributable to the operational results detailed above.

Loss from discontinued operations, net of tax is attributable to the sale of the Company’s former APAC operating segment, which was sold in September 2019. During the twelve months ended December 31, 2020, the remaining post-closing conditions of the sale were completed, including a true up to net cash proceeds, which resulted in a loss on sale of discontinued operations of $0.5 million in accordance with Accounting Standards Codification 205-20, “ Discontinued Operations” .

See below for a discussion of operating results by segment.

Horizon Americas

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

Twelve Months Ended December 31,

Change

Net Sales

Aftermarket

Automotive OEM

Automotive OES

Retail

E-commerce

Industrial

Other

Total

Net sales increased $74.0 million, or 19.4%, to $456.4 million during the twelve months ended December 31, 2021, as compared to $382.4 million during the twelve months ended December 31, 2020, primarily attributable to higher sales volumes. The increased volumes are primarily attributable to the impacts of economic uncertainty and business disruptions of the COVID-19 pandemic that impacted the Company in 2020, most significantly in the first and second quarters. Net sales also increased by $38.8 million due to pricing recovery initiatives implemented, primarily in the aftermarket, OE, retail and e-commerce sales channels, to partially recover increased material and input costs. The increase was partially offset by a $1.7 million increase in sales returns and allowances.

Horizon Americas’ gross profit increased $16.2 million, or 17.0%, to $112.1 million, or 24.6% of net sales, during the twelve months ended December 31, 2021, as compared to $95.9 million, or 25.1% of net sales, during the twelve months ended December 31, 2020. The increase in gross profit is primarily attributable to the increase in net sales detailed above, partially offset by unfavorable material, supply chain and other manufacturing input costs, net of customer pricing recoveries, attributable to significant commodity and logistics cost increases in the Company’s supply chain due to global macroeconomic factors. The decrease in gross profit margin was primarily driven by a significant rise in inputs costs that impacted business performance, especially in the third and fourth quarters of 2021, that were not able to be fully passed through to our customers during 2021, given there is generally a delay in such recoveries due to market pressures and restrictions within certain customer contracts that require agreement.

SG&A expenses increased $1.6 million to $69.5 million, or 15.2% of net sales, during the twelve months ended December 31, 2021, as compared to $67.9 million, or 17.8% of net sales, during the twelve months ended December 31, 2020. The increase in SG&A is primarily attributable to the following:

– $3.5 million of higher outside professional fees and other administrative costs;

– $1.2 million of higher personnel and other variable compensation costs, primarily as a result of temporary salary reductions in the U.S. and other compensation and benefit cost reductions in the second quarter of 2020 in response to the impacts of the COVID-19 pandemic; partially offset by:

– $1.5 million of lower depreciation and amortization.

Horizon Americas’ operating profit increased $14.6 million to $42.6 million, or 9.3% of net sales, during the twelve months ended December 31, 2021, as compared to $28.0 million, or 7.3% of net sales, during the twelve months ended December 31, 2020. Improved operating profit and operating margin were primarily due to the operational results detailed above.

Horizon Americas’ Adjusted EBITDA increased $10.8 million to $49.2 million during the twelve months ended December 31, 2021, as compared to Adjusted EBITDA of $38.4 million during the twelve months ended December 31, 2020. Adjusted EBITDA improved primarily due to operational results detailed above.

Horizon Europe-Africa

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

Twelve Months Ended December 31,

Change

Net Sales

Aftermarket

Automotive OEM

Automotive OES

E-commerce

Industrial

Other

Total

Net sales increased $46.8 million, or 16.8%, to $325.7 million during the twelve months ended December 31, 2021, as compared to $278.9 million during the twelve months ended December 31, 2020, primarily attributable to higher sales volumes. The increased volumes are primarily attributable to the impacts of economic uncertainty and business disruptions of the COVID-19 pandemic that impacted the Company in 2020, most significantly in the first and second quarters. Net sales also increased by $8.6 million due to pricing recovery initiatives implemented, primarily in the OE sales channels, to recover increased material and input costs. The increase was also due to $15.3 million of favorable currency translation.

Horizon Europe-Africa’s gross profit increased $5.8 million, or 23.3%, to $30.5 million, or 9.4% of net sales, during the twelve months ended December 31, 2021, from $24.7 million, or 8.9% of net sales, during the twelve months ended December 31, 2020. The increase in gross profit and gross profit margin is primarily attributable to the increase in net sales detailed above, which included a sales mix shift to higher margin products. The gross profit and gross profit margin increase was partially offset by unfavorable material, supply chain and other manufacturing input cost, net of customer pricing increases, coupled with the inability to flex costs efficiently based on OEM customer production schedule changes that negatively impacted business performance, especially in the third and fourth quarters of 2021. The input costs increases were not able to be fully passed through to our customers during 2021, given there is generally a delay in such recoveries due to market pressures and restrictions within certain customer contracts that require agreement.

SG&A expenses increased $7.9 million to $41.0 million, or 12.6% of net sales, during the twelve months ended December 31, 2021, as compared to $33.1 million, or 11.9% of net sales, during the twelve months ended December 31, 2020. The increase in SG&A was primarily attributable to the cost saving initiatives implemented by the Company and corresponding savings realized during 2020 in response to the impacts of the COVID-19 pandemic. As a result, the increase in SG&A is attributable to the following:

– $2.2 million of higher personnel and other variable compensation cost, partially as a result of payroll costs reimbursed in the prior year under terms of certain government payroll reimbursement programs;

– $1.5 million of higher outside professional fees and other administrative costs; and

– $1.8 million of unfavorable currency translation.

Horizon Europe-Africa’s operating loss increased $2.1 million to an operating loss of $(10.5) million, or (3.2)% of net sales, during the twelve months ended December 31, 2021, as compared to an operating loss of $(8.4) million, or (3.0)% of net sales, during the twelve months ended December 31, 2020. The changes in operating loss and operating margin were primarily due to the operational results detailed above.

Horizon Europe-Africa’s Adjusted EBITDA decreased $1.8 million to $6.9 million during the twelve months ended December 31, 2021, as compared to Adjusted EBITDA of $8.7 million during the twelve months ended December 31, 2020. Adjusted EBITDA declined primarily due to the operational results detailed above.

Corporate Expenses

Corporate expenses included in operating loss decreased $1.7 million to $24.8 million during the twelve months ended December 31, 2021, as compared to $26.5 million during the twelve months ended December 31, 2020. The decrease was primarily attributable to the following:

– $1.2 million of lower costs incurred related to professional service fees and other costs associated with new debt issuance, amendments, and modifications and related structure changes.

Corporate Adjusted EBITDA was $(20.5) million during the twelve months ended December 31, 2021, as compared to Adjusted EBITDA of $(20.7) million during the twelve months ended December 31, 2020. Adjusted EBITDA improved primarily due to higher discretionary and administrative support costs, partially offset by lower personnel and compensation costs.

Liquidity and Capital Resources

Our capital and working capital requirements are funded through a combination of cash on hand, cash flows from operations and various borrowings and factoring arrangements described below, including our asset-based Revolving Credit Facility (as defined below). As of December 31, 2021 and 2020, we had  $8.2 million  and $18.2 million, respectively, of cash and cash equivalents held at foreign subsidiaries. There may be country specific regulations which may restrict or result in increased costs in the repatriation of these funds.

In March 2020, the Company, as guarantor, entered into a Loan and Security Agreement (the “Loan Agreement”) with Encina Business Credit, LLC (“Encina”), as agent for the lenders party thereto, and Horizon Global Americas Inc. and Cequent Towing Products of Canada Ltd., as borrowers (the “ABL Borrowers”). The Loan Agreement provides for an asset-based revolving credit facility (the “Revolving Credit Facility”) in the maximum aggregate principal amount of $75.0 million subject to customary borrowing base limitations contained therein, and may be increased at the ABL Borrowers’ request in increments of $5.0 million, up to a maximum of five times over the life of the Revolving Credit Facility, for a total increase of up to $25.0 million. As of December 31, 2021, the Company had availability of $27.4 million under the Revolving Credit Facility and $3.6 million of cash and cash equivalents in the United States.

As of December 31, 2021 and 2020, total cash and availability was $39.2 million and $83.4 million, respectively. The Company defines cash and availability as cash and cash equivalents and amounts of cash accessible but undrawn from credit facilities.

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

In April 2020, Horizon Global Company LLC (the “U.S. Borrower”), a direct U.S.-based subsidiary of the Company, received a loan from PNC Bank, National Association (“PNC”) for $8.7 million, pursuant to the Paycheck Protection Program (the “PPP Loan”) under Division A, Title I of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The PPP Loan was amended in July 2021 to make any unforgiven portion payable over five years on a monthly basis. Funds from the PPP Loan may be used for payroll, costs used to continue group health care benefits, rent and utilities. Under the terms of the PPP Loan, certain amounts may be forgiven if they are used for qualifying expenses as described in the CARES Act.

During the fourth quarter of 2021, the Company’s application of loan forgiveness with PNC and the Small Business Administration was approved for forgiveness of $7.4 million of principal and $0.1 million of interest. The $1.3 million unforgiven portion of the loan has an interest rate of 1.0% per annum and will be repaid on a monthly basis through April 2025.

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

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

Cash Flows - Operating Activities

Net cash used for and provided by operating activities during the twelve months ended December 31, 2021 and 2020 was $(42.7) million and $39.1 million, respectively.

During the twelve months ended December 31, 2021, the Company generated $13.3 million i n cash flows, based on the reported net loss of $(33.1) million and after considering the effects of non-cash items related to depreciation, amortization of intangible assets, gain and loss on debt extinguishment, amortization of original issuance discount and debt issuance costs, deferred income taxes, non-cash compensation expense, paid-in-kind interest, and other, net. During the twelve months ended December 31, 2020, the Company generated $7.4 million based on the reported net loss of $(37.5) million and after considering the effects of similar non-cash items.

Changes in operating assets and liabilities used $(56.0) million and sourced $31.7 million of cash during the twelve months ended December 31, 2021 and 2020, respectively.

Changes in accounts receivable resulted in a net source of cash of $2.1 million during the twelve months ended December 31, 2021. The decrease in accounts receivable during 2021 was driven primarily by lower net sales in the fourth quarter of 2021 as compared to the fourth quarter of 2020 . During the twelve months ended December 31, 2020, the increase in accounts receivables resulted in a net use of cash of $(12.2) million. The increase in accounts receivable during 2020 was driven primarily by higher net sales in the fourth quarter of 2020 as compared to the prior year , partially offset by pull ahead collection efforts in the fourth quarter of 2020.

Changes in inventory resulted in a net use of cash of $(52.3) million and source of $24.2 million during the twelve months ended December 31, 2021 and 2020, respectively. The increase in inventory during 2021 was driven primarily by global macroeconomic factors experienced during the period, including increased costs of raw materials, such as steel; constraints on shipping container availability and port congestion resulting in higher inventory costs. The decrease in inventory during the twelve months ended December 31, 2020 was due to improved inventory management coupled with an extended selling season in the last half of the year.

Changes in prepaid expenses and other assets resulted in a net use of cash of $(0.7) million and $(4.9) million during the twelve months ended December 31, 2021 and 2020, respectively. The increase in prepaid expenses and other assets during 2021 and 2020 was primarily due to the mix of invoicing from vendors and subsequent payment.

Changes in accounts payable and accrued liabilities resulted in a use of cash of $(5.2) million a nd a source of cash $24.6 million during the twelve months ended December 31, 2021 and 2020, respectively. The use of cash during 2021 , as compared to the source of cash during 2020, was primarily due to the timing of payments made to suppliers, mix of vendors and related terms coupled with improved working capital management during 2020 as compared to the prior year.

Cash Flows - Investing Activities

Net cash used for investing activities during the twelve months ended December 31, 2021 was $(20.4) million , as compared to net cash used for investing activities of $(13.2) million during the twelve months ended December 31, 2020.

During the twelve months ended December 31, 2021, capital expenditures were $(20.5) million as compared to $(13.3) million during the twelve months ended December 31, 2020, which related to growth, capacity and productivity-related projects within Horizon Americas and Horizon Europe‑Africa. The increase in capital expenditures was primarily due to the Company’s curtailment or retiming of certain projects during 2020, in response to the impacts and business disruptions of the COVID-19 pandemic.

We expect our capital spending in the twelve months ended December 31, 2022 to be $27.0 million, primarily related to support for product development, growth and maintenance for the business.

Cash Flows - Financing Activities

Net cash provided by financing activities wa s $30.3 million and $12.7 million during the twelve months ended December 31, 2021 and 2020, respectively.

During the twelve months ended December 31, 2021 and 2020, net proceeds from the Revolving Credit Facility, net of issuance costs, were $33.8 million and $21.9 million, respectively. During the twelve months ended December 31, 2020, net repayments on the Company’s former asset based lending facility totaled $(19.9) million.

During the twelve months ended December 31, 2021, proceeds from the Company’s new term loan, net of issuance costs and related issuance of common stock warrants, were $75.3 million and $16.3 million , respectively. During the twelve months ended December 31, 2021, repayments of borrowings on the Company’s former term loan, including transaction fees, were $(94.9) million .

During the twelve months ended December 31, 2020, proceeds from the Company’s PPP Loan were $8.7 million.

Factoring Arrangements

The Company has factoring arrangements with financial institutions to sell certain accounts receivable. During the twelve months ended December 31, 2021 and 2020, total receivables sold under certain non-recourse factoring arrangements were $279.9 million and $237.1 million, respectively. We utilize factoring arrangements as part of our working capital needs. The costs of participating in these arrangements are immaterial to our results. Refer to Note 3, Summary of Significant Accounting Policies, in Item 8, “ Financial Statements and Supplementary Data ,” included within this Annual Report on Form 10-K for additional information.

Our Debt and Other Commitments

We and certain of our subsidiaries are party to the asset-based Revolving Credit Facility governed by the Loan Agreement, each as defined and described above. The Revolving Credit Facility provides for $75.0 million of funding, which has been subsequently increased as described below, on a revolving basis, subject to borrowing base availability, and matures on March 13, 2024. As of December 31, 2021, there was $58.1 million outstanding on the Revolving Credit Facility with interest payable in cash at an interest rate of London Interbank Offered Rate (“LIBOR”) plus 4.00% per annum, subject to a 1.00% LIBOR floor.

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

In September 2021, the Company entered into an amendment to the Loan Agreement, that among other modifications, increased the maximum amount of credit available under the Revolving Credit Facility to $95.0 million. The amendment also increased the Company’s ability to borrow against receivables and sub-limits relating to in-transit inventory and inventory located in the Company’s Mexico facilities. The increased borrowing capacity against receivables and inventory was effective through December 31, 2021.

On December 30, 2021, the Company entered into an amendment to the Loan Agreement, that among other modifications, permanently increased the Company’s inventory sub-limit and temporarily increased the Company’s ability to borrow against

receivables, in-transit inventory as well as inventory located in the Company’s Mexico facilities, which is effective through March 31, 2022. The amendment also amended the interest rate of the Revolving Credit Facility effective March 31, 2022, to be 3.50% to 4.00% per annum, subject to certain conditions defined in the Loan Agreement. The amendment also extended the term of the Revolving Credit Facility by one year, and all borrowings under the Loan Agreement mature on March 13, 2024.

In addition, the Company and certain of its subsidiaries, have been or are parties to other long-term credit agreements, including the Senior Term Loan Credit Agreement, as defined and described below. As of December 31, 2021, there was $100.0 million outstanding on the Senior Term Loan Credit Agreement bearing cash interest at the interest rate of LIBOR plus 7.50%, subject to a 1.00% LIBOR floor.

In February 2017, the Company completed a public offering of 2.75% Convertible Senior Notes due 2022 (the “Convertible Notes”) in an aggregate principal amount of $125.0 million. Interest is payable on January 1 and July 1 of each year. As a result of the Company’s Senior Term Loan Credit Agreement, which includes the delayed draw term loan facility, and the Series B Preferred Stock commitment letter executed in February 2022, the Company has the ability and intent to repay the Convertible Notes when they mature on July 1, 2022. The Senior Term Loan Credit Agreement, delayed draw term loan facility and Series B Preferred Stock commitment letter are each defined and described below.

First Lien Term Loan Agreement and Second Lien Term Loan Agreement

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

In March 2019, the Company entered into a credit agreement (the “Second Lien Term Loan Agreement”) with Cortland Capital Markets Services LLC, as administrative agent and collateral agent, and Corre Partners Management L.L.C., as representative of the lenders, and the lenders party thereto.

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

Replacement Term Loan

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

In February 2021, the Company entered into the Senior Term Loan Credit Agreement, as defined and described below. The proceeds received from the initial borrowings under the Senior Term Loan Credit Agreement were used to repay in full all outstanding debt and accrued interest on the Replacement Term Loan. As a result of the repayment, the credit agreement governing the Company’s Replacement Term Loan was terminated and is no longer in effect.

Senior Term Loan Credit Agreement

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

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

extent that the amount of capital expenditures is less than $27.5 million in any fiscal year, up to 50% of the difference may be carried forward and used for capital expenditures in the immediately succeeding fiscal year.

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

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

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

Senior Term Loan Credit Agreement Amendment

On February 10, 2022, the Company entered into an amendment to its Senior Term Loan Credit Agreement (the “Senior Term Loan Credit Agreement Amendment”) with Atlantic Park. The Senior Term Loan Credit Agreement Amendment provides for a $35.0 million draw on the Company’s existing delayed draw term loan facility under the Senior Term Loan Credit Agreement and allows the net proceeds to be used for working capital purposes and to fund low-cost country expansion in the Company’s Horizon Europe-Africa operating segment. All amounts drawn under the delayed draw facility are governed by the existing terms of the Company’s Senior Term Loan Credit Agreement.

Pursuant to the Senior Term Loan Credit Agreement Amendment, the Company issued warrants to Atlantic Park to purchase up to 975,000 shares of the Company’s common stock, with an exercise price of $9.00 per share. The warrants are exercisable at any time prior to February 10, 2027, provided that the warrants may not be exercised and shares of common stock may not be issued pursuant to the warrants unless and until the Company obtains shareholder approval permitting the issuance of such shares of common stock in accordance with the rules of the New York Stock Exchange.

On February 10, 2022, the Company executed a commitment letter with Corre Partners Management L.L.C. (“Corre”) to issue, solely at the Company’s option, up to $40.0 million of Series B Preferred Stock. To the extent issued, the net proceeds of the Series B Preferred Stock may be used to repay up to $35.0 million of the Company’s outstanding Convertible Notes at maturity and, following such repayment, for general corporate purposes. If issued, the Series B Preferred Stock would accrue dividends in kind at a rate of 11.0% per annum. The Series B Preferred Stock would be perpetual, but subject to voluntary redemption by the Company at its option and subject to mandatory redemption upon a change in control or the one-year anniversary of the maturity of the Senior Term Loan. Additionally, if issued, if the Series B Preferred Stock is not redeemed after the occurrence of certain events, it would be convertible into shares of the Company’s common stock, at the option of Corre and subject to shareholder approval. The commitment letter expires on July 1, 2022.

The Company estimates it incurred $1.4 million of debt issuance costs and fees associated with the above transactions. The transactions will be accounted for in the first quarter of 2022.

Covenant and Liquidity Matters

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

We are subject to variable interest rates on our Senior Term Loan Credit Agreement and Revolving Credit Facility. At December 31, 2021, 1-Month LIBOR and 3-Month LIBOR approximated 0.10% and 0.21% , respectively.

The Company is in compliance with all of its financial covenants as of December 31, 2021.

In addition to our long-term debt, we have other cash commitments related to leases. We account for these lease transactions as operating leases and rent expense related thereto for the twelve months ended December 31, 2021 and 2020 was $14.5 million

and $15.0 million, respectively. As of December 31, 2021, we had obligations for future lease payments of $57.7 million. We expect to continue to utilize leasing as a financing strategy in the future to meet capital expenditure needs and to reduce debt levels.

Refer to Note 9, Long-term Debt , and Note 10, Leases , in Item 8, “ Financial Statements and Supplementary Data ,” included within this Annual Report on Form 10-K for additional information.

Consolidated EBITDA

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

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

Twelve Months Ended December 31,

Change

(dollars in thousands)

Net loss attributable to Horizon Global

Net loss attributable to noncontrolling interest

Net loss

Interest expense

Income tax benefit

Depreciation and amortization

EBITDA

Net loss attributable to noncontrolling interest

Loss from discontinued operations, net of income tax

EBITDA from continuing operations

Adjustments pursuant to Senior Term Loan Agreement:

Losses on sale of receivables

Debt extinguishment losses

Non-cash equity grant expenses

Other non-cash expenses or losses (gains)

Lender agent related professional fees, costs, and expenses (a)

Non-recurring expenses or costs (b)

Non-cash losses on asset sales

Debt extinguishment gains

Other

Adjusted EBITDA

Non-recurring expense limitation (a) (b)

Other

Consolidated EBITDA

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

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

Credit Rating

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

Outlook

Our business remains susceptible to macroeconomic conditions that could adversely affect our results, including the global microchip shortage and ongoing global shipping container and other transportation and logistics constraints. These recent macroeconomic factors have resulted in a delay of receiving raw materials by the Company or some of our OE customers, which has resulted in retiming some customer orders to future periods. We have also experienced increased costs for certain raw materials, including steel, and while the Company endeavors to recover incremental input costs through pricing recovery initiatives, the recoveries generally occur over time and are not guaranteed. However, the trend of customer orders in the economies that most significantly affect our demand has been strong, including the United States and Europe. We also continue to monitor the ongoing COVID-19 pandemic and potential impacts to our operations, employees, customers and other stakeholders, as well as prioritizing the health and safety of our employees. We continue to monitor these macroeconomic factors and remain committed to fulfilling and delivering our customers’ orders driven by the strong product demand we have experienced.

We also remain focused on maintaining liquidity to fund our operations, while considering future maturities in our capital structure, which have been addressed and will continue to be addressed as the Company continues to execute our business plan and operational improvement initiatives in 2022. These initiatives were put in place to streamline and simplify the Company’s operations and provide a roadmap to achieve our strategic priorities of margin expansion, liquidity management and organic business growth.

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

Impact of New Accounting Standards

See Note 2, New Accounting Pronouncements , included in Item 8, “ Financial Statements and Supplementary Data ,” within this Annual Report on Form 10-K.

Critical Accounting Estimates

The following discussion of accounting estimates is intended to supplement the accounting policies presented in Note 3, Summary of Significant Accounting Policies included in Item 8, “ Financial Statements and Supplementary Data ,” within this Annual Report on Form 10-K. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, our evaluation of business and macroeconomic trends, and information from other outside sources, as appropriate.

Revenue Recognition. Revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

Sales Related Accruals. Net sales are comprised of gross revenues less estimates of expected returns, trade discounts and customer allowances, which include incentives for items such as cooperative advertising agreements, volume discounts and other supply agreements in connection with various customer programs. On at least a quarterly basis, we perform detailed reviews of our sales related accruals by evaluating specific customer contractual commitments, assessing current incentive programs and other relevant information in order to assess the adequacy of the reserve. Reductions to revenue and estimated accruals are recorded in the period in which revenue is recognized.

Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts to reflect management’s best estimate of probable credit losses inherent in our accounts receivable balances. Determination of the allowances requires management to exercise judgment about the timing, frequency and severity of credit losses that could materially affect the allowances for

doubtful accounts and, therefore, net income. The level of the allowance is based on quantitative and qualitative factors including historical loss experience, delinquency trends, economic conditions and customer credit risk. We perform detailed reviews of our accounts receivable portfolio on at least a quarterly basis to assess the adequacy of the allowance. Over the past two years, the allowance for doubtful accounts was 3.4% to 3.0% of gross accounts receivable. We do not believe that significant credit risk exists due to our diverse customer base.

Impairment of Long-Lived Assets and Definite-Lived Intangible Assets.  We review the Company’s financial performance for indicators of impairment on at least a quarterly basis. In reviewing for impairment indicators, we also consider events or changes in circumstances such as business prospects, customer retention, market trends, potential product obsolescence, competitive activities and other economic factors. An impairment loss is recognized when the carrying value of an asset group exceeds the future net undiscounted cash flows expected to be generated by that asset group. The impairment loss recognized is the amount by which the carrying value of the asset group exceeds its fair value.

Goodwill and Indefinite-Lived Intangibles. On June 8, 2021, the Company divested its Brazil business via a share sale (the “Brazil Sale”). Under the terms of the Brazil Sale, the Company disposed all assets and liabilities of its Brazil business, including $3.3 million of goodwill within the Horizon Americas operating segment, for nominal consideration. As a result, as of December 31, 2021, the Company had no recorded goodwill and no annual goodwill impairment test was required in 2021.

The Company performed an annual goodwill impairment test as of October 1, 2020, for the Horizon Americas reporting unit. The assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value.

We review indefinite-lived intangible assets for impairment annually or more frequently if events or changes in circumstances indicate the assets might be impaired. The Company first performs a qualitative assessment of whether it is more likely than not that an indefinite-lived intangible asset is impaired. If necessary, the Company then performs a quantitative impairment test by comparing the estimated fair value of the asset, based upon its forecasted cash flows using the relief from royalty method, to its carrying value. The Company performed an annual indefinite-lived asset impairment test as of October 1, 2020. The assessment indicated that it was more likely than not that the fair value of the indefinite-lived intangible assets exceeded their carrying value.

See Note 5, Goodwill and Other Intangible Assets included in Item 8, “ Financial Statements and Supplementary Data, ” within this Annual Report on Form 10-K for further information.

Income Taxes.  We compute income taxes using the asset and liability method, whereby deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities and for operating loss and tax credit carryforwards. Under this method, changes in tax rates and laws are recognized in income in the period such changes are enacted. We determine valuation allowances based on an assessment of positive and negative evidence on a jurisdiction-by-jurisdiction basis and are utilized to reduce deferred tax assets to the amount more likely than not to be realized. To make this assessment, we evaluate historical operating results, the existence of cumulative losses in the most recent fiscal years, expectations for future pretax operating income, the time period over which our temporary differences will reverse and the implementation of feasible and prudent tax planning strategies. Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Changes in existing tax laws could also affect actual tax results and the valuation of deferred tax assets over time. We record interest and penalties related to uncertain tax positions in income tax expense.

We are also currently subject to tax controversies in various jurisdictions, and these jurisdictions may assess additional income tax liabilities against us. Developments in audits could have a material effect on our operating results or cash flows in the period for which that development occurs, as well as for subsequent periods. We regularly assess the likelihood of an adverse outcome resulting from these proceedings to determine the adequacy of our tax accruals. Although we believe our estimates are reasonable, the final outcome of audits could be materially different from our historical income tax provisions and accruals.

Refer to Note 16, Income Taxes, to the consolidated financial statements included in Item 8, “ Financial Statements and Supplementary Data, ” of this Annual Report on Form 10-K for additional information.