Document

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

 
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
 
For the Quarterly Period Ended June 30, 2017
or

o

 
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period from                  to                  .
Commission file number 001-37427
HORIZON GLOBAL CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
(State or other jurisdiction of
incorporation or organization)
 
47-3574483
(IRS Employer
Identification No.)
2600 W. Big Beaver Road, Suite 555
Troy, Michigan 48084
(Address of principal executive offices, including zip code)
(248) 593-8820
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No o.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x    No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
Emerging growth company x
 
 
 
 
(Do not check if a
smaller reporting company)
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes x No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No x
As of July 28, 2017, the number of outstanding shares of the Registrant’s common stock, par value $0.01 per share, was 24,936,110 shares.



HORIZON GLOBAL CORPORATION
Index
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1

Table of Contents

Forward-Looking Statements
This report may contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date they are made and give our current expectations or forecasts of future events. These forward-looking statements can be identified by the use of forward-looking words, such as “may,” “could,” “should,” “estimate,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “target,” “plan” or other comparable words, or by discussions of strategy that may involve risks and uncertainties.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties which could materially affect our business, financial condition or future results including, but not limited to, risks and uncertainties with respect to: the Company’s integration of the Westfalia Group (“Westfalia Group” consists of Westfalia-Automotive Holding GmbH and TeIJs Holding B.V.); leverage; liabilities imposed by the Company’s debt instruments; market demand; competitive factors; supply constraints; material and energy costs; technology factors; litigation; government and regulatory actions; the Company’s accounting policies; future trends; general economic and currency conditions; various conditions specific to the Company’s business and industry; and other risks that are discussed in Item 1A, “Risk Factors” and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The risks described in our Annual Report and elsewhere in this report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deemed to be immaterial also may materially adversely affect our business, financial position and results of operations or cash flows.
The cautionary statements set forth above should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We caution readers not to place undo reliance on the statements, which speak only as of the date of this report. We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statement to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as otherwise required by law.
We disclose important factors that could cause our actual results to differ materially from our expectations implied by our forward-looking statements under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report. These cautionary statements qualify all forward-looking statements attributed to us or persons acting on our behalf. When we indicate that an event, condition or circumstance could or would have an adverse effect on us, we mean to include effects upon our business, financial and other conditions, results of operations, prospects and ability to service our debt.


2

Table of Contents

PART I. FINANCIAL INFORMATION

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


 
June 30,
2017

December 31,
2016
 
 
(unaudited)
 
 
Assets
 

 

Current assets:
 

 

Cash and cash equivalents
 
$
39,570


$
50,240

Receivables, net of reserves of approximately $4.1 million and $3.8 million at June 30, 2017 and December 31, 2016, respectively
 
121,600


77,570

Inventories
 
156,620


146,020

Prepaid expenses and other current assets
 
13,680


12,160

Total current assets
 
331,470

 
285,990

Property and equipment, net
 
104,550


93,760

Goodwill
 
134,380


120,190

Other intangibles, net
 
85,770


86,720

Deferred income taxes
 
9,270

 
9,370

Other assets
 
10,060


17,340

Total assets
 
$
675,500

 
$
613,370

Liabilities and Shareholders' Equity
 

 

Current liabilities:
 

 

Current maturities, long-term debt
 
$
11,720


$
22,900

Accounts payable
 
121,240


111,450

Accrued liabilities
 
63,640


63,780

Total current liabilities
 
196,600

 
198,130

Long-term debt
 
269,170


327,040

Deferred income taxes
 
29,390


25,730

Other long-term liabilities
 
29,510


30,410

Total liabilities
 
524,670

 
581,310

Commitments and contingent liabilities
 

 

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

 

Common stock, $0.01 par: Authorized 400,000,000 shares;
Issued and outstanding: 25,011,541 shares at June 30, 2017 and 20,899,959 shares at December 31, 2016
 
250

 
210

Paid-in capital
 
157,330

 
54,800

Treasury stock, at cost: 570,365 shares at June 30, 2017 and no shares at December 31, 2016
 
(8,360
)
 

Accumulated deficit
 
(3,910
)
 
(14,310
)
Accumulated other comprehensive income (loss)
 
6,400

 
(8,340
)
Total Horizon Global shareholders' equity
 
151,710

 
32,360

Noncontrolling interest
 
(880
)
 
(300
)
Total shareholders' equity
 
150,830

 
32,060

Total liabilities and shareholders' equity
 
$
675,500

 
$
613,370

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

3

Table of Contents

HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited—dollars in thousands, except for per share amounts)

 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
Net sales
 
$
253,590

 
$
167,760

 
$
456,870

 
$
313,870

Cost of sales
 
(185,920
)
 
(122,050
)
 
(343,810
)
 
(230,550
)
Gross profit
 
67,670

 
45,710

 
113,060

 
83,320

Selling, general and administrative expenses
 
(43,360
)
 
(31,970
)
 
(89,480
)
 
(61,660
)
Impairments
 

 
(2,240
)
 

 
(2,240
)
Net loss on dispositions of property and equipment
 
(70
)
 
(380
)
 

 
(490
)
Operating profit
 
24,240

 
11,120

 
23,580

 
18,930

Other expense, net:
 
 
 
 
 
 
 
 
Interest expense
 
(5,220
)
 
(4,230
)
 
(11,110
)
 
(8,500
)
Loss on extinguishment of debt
 

 

 
(4,640
)
 

Other expense, net
 
(700
)
 
(560
)
 
(1,250
)
 
(1,170
)
Other expense, net
 
(5,920
)
 
(4,790
)
 
(17,000
)
 
(9,670
)
Income before income tax benefit
 
18,320

 
6,330

 
6,580

 
9,260

Income tax benefit
 
1,650

 
1,000

 
3,230

 
260

Net income
 
19,970

 
7,330

 
9,810

 
9,520

Less: Net loss attributable to noncontrolling interest
 
(290
)
 

 
(590
)
 

Net income attributable to Horizon Global
 
$
20,260

 
$
7,330

 
$
10,400

 
$
9,520

Net income per share attributable to Horizon Global:
 
 
 
 
 

 

Basic
 
$
0.80

 
$
0.40

 
$
0.42

 
$
0.53

Diluted
 
$
0.79

 
$
0.40

 
$
0.42

 
$
0.52

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
25,385,395

 
18,162,451

 
24,616,939

 
18,130,081

Diluted
 
25,743,077

 
18,319,068

 
25,044,653

 
18,260,246



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

4

Table of Contents

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

 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
Net income
 
$
19,970

 
$
7,330

 
$
9,810

 
$
9,520

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Foreign currency translation
 
5,780

 
(1,730
)
 
13,500

 
300

Derivative instruments (Note 7)
 
270

 
460

 
1,250

 
400

Total other comprehensive income (loss)
 
6,050

 
(1,270
)
 
14,750

 
700

Total comprehensive income
 
26,020

 
6,060

 
24,560

 
10,220

Less: Comprehensive loss attributable to noncontrolling interest
 
(280
)
 

 
(580
)
 

Comprehensive income attributable to Horizon Global
 
$
26,300

 
$
6,060

 
$
25,140

 
$
10,220



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

 

5

Table of Contents

HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited—dollars in thousands)
 
 
Six months ended
June 30,
 
 
2017
 
2016
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
9,810

 
$
9,520

Adjustments to reconcile net income to net cash provided by (used for) operating activities:
 
 
 
 
Net loss on dispositions of property and equipment
 

 
490

Depreciation
 
6,510

 
4,990

Amortization of intangible assets
 
4,960

 
3,640

Impairment of intangible assets
 

 
2,240

Amortization of original issuance discount and debt issuance costs
 
3,240

 
930

Deferred income taxes
 
970

 
(370
)
Loss on extinguishment of debt
 
4,640

 

Non-cash compensation expense
 
1,830

 
1,830

Increase in receivables
 
(40,380
)
 
(23,870
)
(Increase) decrease in inventories
 
(5,570
)
 
12,540

(Increase) decrease in prepaid expenses and other assets
 
970

 
(1,580
)
Decrease in accounts payable and accrued liabilities
 
(1,460
)
 
(2,680
)
Other, net
 
(110
)
 
(270
)
Net cash provided by (used for) operating activities
 
(14,590
)
 
7,410

Cash Flows from Investing Activities:
 
 
 
 
Capital expenditures
 
(13,340
)
 
(6,670
)
Net proceeds from disposition of property and equipment
 
940

 
240

Net cash used for investing activities
 
(12,400
)
 
(6,430
)
Cash Flows from Financing Activities:
 
 
 
 
Proceeds from borrowings on credit facilities
 
220

 
39,160

Repayments of borrowings on credit facilities
 
(2,890
)
 
(37,280
)
Repayments of borrowings on Term B Loan, inclusive of transaction costs
 
(185,800
)
 
(5,000
)
Proceeds from ABL Revolving Debt
 
82,400

 
81,930

Repayments of borrowings on ABL Revolving Debt
 
(62,400
)
 
(71,930
)
Proceeds from issuance of common stock, net of offering costs
 
79,920

 

Repurchase of common stock
 
(8,360
)
 

Proceeds from issuance of Convertible Notes, net of issuance costs
 
120,950

 

Proceeds from issuance of Warrants, net of issuance costs
 
20,930

 

Payments on Convertible Note Hedges, inclusive of issuance costs
 
(29,680
)
 

Other, net
 
(240
)
 
(260
)
Net cash provided by financing activities
 
15,050

 
6,620

Effect of exchange rate changes on cash
 
1,270

 
(80
)
Cash and Cash Equivalents:
 
 
 
 
Increase (decrease) for the period
 
(10,670
)
 
7,520

At beginning of period
 
50,240

 
23,520

At end of period
 
$
39,570

 
$
31,040

Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid for interest
 
$
7,220

 
$
7,510


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

6

Table of Contents

HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Six Months Ended June 30, 2017
(unaudited—dollars in thousands)

 
 
Common
Stock
 
Paid-in
Capital
 
Treasury Stock
 
Accumulated Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total Horizon Global Shareholders’ Equity
 
Noncontrolling Interest
 
Total Shareholders’ Equity
Balance at December 31, 2016
 
$
210

 
$
54,800

 
$

 
$
(14,310
)
 
$
(8,340
)
 
$
32,360

 
$
(300
)
 
$
32,060

Net income (loss)
 

 

 

 
10,400

 

 
10,400

 
(590
)
 
9,810

Other comprehensive income, net of tax
 

 

 

 

 
14,740

 
14,740

 
10

 
14,750

Issuance of common stock, net of issuance costs
 
40

 
79,880

 

 

 

 
79,920

 

 
79,920

Repurchase of common stock
 

 

 
(8,360
)
 

 

 
(8,360
)
 

 
(8,360
)
Shares surrendered upon vesting of employees' share based payment awards to cover tax obligations
 

 
(240
)
 

 

 

 
(240
)
 

 
(240
)
Non-cash compensation expense
 

 
1,830

 

 

 

 
1,830

 

 
1,830

Issuance of Warrants, net of issuance costs
 

 
20,930

 

 

 

 
20,930

 

 
20,930

Initial equity component of the 2.75% Convertible Senior Notes due 2022, net of issuance costs and tax
 

 
19,680

 

 

 

 
19,680

 

 
19,680

Convertible Note Hedges, net of issuance costs and tax
 

 
(19,550
)
 

 

 

 
(19,550
)
 

 
(19,550
)
Balance at June 30, 2017
 
$
250

 
$
157,330

 
$
(8,360
)
 
$
(3,910
)
 
$
6,400

 
$
151,710

 
$
(880
)
 
$
150,830



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


7

Table of Contents

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


1. Basis of Presentation
Horizon Global Corporation (“Horizon,” “Horizon Global,” or the “Company”) is a global designer, manufacturer and distributor of a wide variety of high quality, custom-engineered towing, trailering, cargo management and other related accessories. These products are designed to support original equipment manufacturers and original equipment suppliers (collectively, “OEs”), aftermarket and retail customers within the agricultural, automotive, construction, horse/livestock, industrial, marine, military, recreational, trailer and utility markets. The Company groups its operating segments into reportable segments by the region in which sales and manufacturing efforts are focused. The Company’s reportable segments are Horizon Americas, Horizon Europe-Africa, and Horizon Asia-Pacific. See Note 8, “Segment Information,” for further information on each of the Company’s reportable segments.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial information and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. It is management’s opinion that these financial statements contain all adjustments, including adjustments of a normal and recurring nature, necessary for a fair presentation of financial position and results of operations. Results of operations for interim periods are not necessarily indicative of results for the full year.
2. New Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 eliminates the requirement to perform a hypothetical purchase price allocation to measure the amount of goodwill impairment. Instead, under ASU 2017-04, the goodwill impairment would be the amount by which a reporting unit’s carrying value exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019 with early adoption permitted. The Company is in the process of assessing the impact of adoption of ASU 2017-04 on its condensed consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” ASU 2016-16 provides an amendment to the accounting guidance related to the recognition of income tax consequences of an intra-entity transfer of an asset other than inventory. This guidance is effective for public entities for fiscal years beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted the first interim period of a fiscal year and should be applied on a modified retrospective basis. Under the new guidance, an entity is required to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Under the current guidance, the income tax effects are deferred until the asset has been sold to an outside party. The Company is in the process of assessing the impact of the adoption of ASU 2016-16 on its condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which supersedes the leases requirements in “Leases (Topic 840).” The objective of this update is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. The Company is in the process of assessing the impact of the adoption of ASU 2016-02 on its condensed consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” This guidance provides that inventory not measured using the last-in, first out (“LIFO”) or retail inventory methods should be measured at the lower of cost and net realizable value. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory. As of January 1, 2017, the provisions of this ASU became effective for the Company on a prospective basis and did not have a material impact on the Company’s condensed consolidated financial position or results of operations.

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Table of Contents

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

Accounting Standards Update 2014-09
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” This ASU supersedes most of the existing guidance on revenue recognition in ASC Topic 605, “Revenue Recognition” and establishes a broad principle that would require an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity identifies the contract with a customer, identifies the separate performance obligations in the contract, determines the transaction price, allocates the transaction price to the separate performance obligations and recognizes revenue when each separate performance obligation is satisfied. The FASB has subsequently issued additional ASUs to clarify certain elements of the new revenue recognition guidance. This guidance is effective for Horizon Global beginning on January 1, 2018 and entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. The Company expects to adopt the ASU using a cumulative-effect adjustment as of the date of adoption. Horizon Global is continuing to assess the potential effects of implementing this guidance. Currently, the Company’s analysis conducted to date indicates that the new standard will not have a material impact on the consolidated financial statements.
There are also certain considerations related to internal control over financial reporting that are associated with implementing the new guidance under Topic 606. The Company is currently evaluating its control framework for revenue recognition and identifying any changes that may need to be made in response to the new guidance. Disclosure requirements under the new guidance in Topic 606 have been significantly expanded in comparison to the disclosure requirements under the current guidance. Designing and implementing the appropriate controls over gathering and reporting the information required under Topic 606 is currently in process.
3. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the six months ended June 30, 2017 are summarized as follows:
 
 
Horizon Americas
 
Horizon
Asia-Pacific
 
Horizon Europe-Africa
 
Total
 
 
(dollars in thousands)
Balance at December 31, 2016
 
$
5,370

 
$

 
$
114,820

 
$
120,190

Foreign currency translation and other
 
(90
)
 

 
14,280

 
14,190

Balance at June 30, 2017
 
$
5,280

 
$

 
$
129,100

 
$
134,380

The gross carrying amounts and accumulated amortization of the Company’s other intangibles as of June 30, 2017 and December 31, 2016 are summarized below. The Company amortizes these assets over periods ranging from three to 25 years.
 
 
June 30, 2017
 
December 31, 2016
Intangible Category by Useful Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Gross Carrying Amount
 
Accumulated Amortization
 
 
(dollars in thousands)
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
   Customer relationships, 5 – 12 years
 
$
68,330

 
$
(30,520
)
 
$
66,000

 
$
(28,440
)
   Customer relationships, 15 – 25 years
 
105,380

 
(87,080
)
 
104,690

 
(84,120
)
Total customer relationships
 
173,710

 
(117,600
)
 
170,690

 
(112,560
)
   Technology and other, 3 – 15 years
 
19,220

 
(15,470
)
 
18,410

 
(14,560
)
   Trademark/Trade names, <1 year
 
150

 
(150
)
 
150

 
(150
)
Total finite-lived intangible assets
 
193,080

 
(133,220
)
 
189,250

 
(127,270
)
 Trademark/Trade names, indefinite-lived
 
25,910

 

 
24,740

 

Total other intangible assets
 
$
218,990

 
$
(133,220
)
 
$
213,990

 
$
(127,270
)

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Table of Contents

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

Amortization expense related to intangible assets as included in the accompanying condensed consolidated statements of income is summarized as follows:
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(dollars in thousands)
Technology and other, included in cost of sales
 
$
140

 
$
40

 
$
360

 
$
70

Customer relationships & Trademark/Trade names, included in selling, general and administrative expenses
 
2,250

 
1,810

 
4,600

 
3,570

Total amortization expense
 
$
2,390

 
$
1,850

 
$
4,960

 
$
3,640

4. Inventories
Inventories consist of the following components:
 
 
June 30,
2017
 
December 31,
2016
 
 
(dollars in thousands)
Finished goods
 
$
93,840

 
$
89,410

Work in process
 
17,620

 
16,270

Raw materials
 
45,160

 
40,340

Total inventories
 
$
156,620

 
$
146,020

5. Property and Equipment, Net
Property and equipment consists of the following components:
 
 
June 30,
2017
 
December 31,
2016
 
 
(dollars in thousands)
Land and land improvements
 
$
440

 
$
520

Buildings
 
23,240

 
20,120

Machinery and equipment
 
151,600

 
138,470

 
 
175,280

 
159,110

Less: Accumulated depreciation
 
70,730

 
65,350

Property and equipment, net
 
$
104,550

 
$
93,760

Depreciation expense included in the accompanying condensed consolidated statements of income is as follows:
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(dollars in thousands)
Depreciation expense, included in cost of sales
 
$
2,980

 
$
2,070

 
$
5,890

 
$
4,250

Depreciation expense, included in selling, general and administrative expense
 
300

 
340

 
620

 
740

Total depreciation expense
 
$
3,280

 
$
2,410

 
$
6,510

 
$
4,990


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

6. Long-term Debt
The Company’s long-term debt consists of the following:
 
 
June 30,
2017
 
December 31,
2016
 
 
(dollars in thousands)
ABL Facility
 
$
20,000

 
$

Term B Loan
 
153,500

 
337,000

Convertible Notes
 
125,000

 

Bank facilities, capital leases and other long-term debt
 
20,660

 
21,660

 
 
319,160

 
358,660

Less:
 
 
 
 
Unamortized debt issuance costs and original issuance discount on Term B Loan
 
5,730

 
8,720

Unamortized debt issuance costs and discount on the Convertible Notes
 
32,540

 

Current maturities, long-term debt
 
11,720

 
22,900

Long-term debt
 
$
269,170

 
$
327,040

Convertible Notes
On February 1, 2017, the Company completed a public offering of 2.75% Convertible Senior Notes due 2022 (the “Convertible Notes”) in an aggregate principal amount of $125.0 million. Interest is payable on January 1 and July 1 of each year, beginning on July 1, 2017. The Convertible Notes are convertible into 5,005,000 shares of common stock, based on an initial conversion price of $24.98 per share. The Convertible Notes will mature on July 1, 2022 unless earlier converted.
The Convertible Notes are convertible at the option of the holder (i) during any calendar quarter beginning after March 31, 2017, if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business days after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of such period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (iii) upon the occurrence of specified corporate events; and (iv) on or after January 1, 2022 until close of business on the second scheduled trading day immediately preceding the maturity date. During the second quarter of 2017, no conditions allowing holders of the Convertible Notes to convert have been met as of June 30, 2017. Therefore, the Convertible Notes are not convertible during the third quarter of 2017 and are classified as long-term debt. Should conditions allowing holders of the Convertible Notes to convert be met in the third quarter of 2017 or a future quarter, the Convertible Notes will be convertible at their holders’ option during the immediately following quarter. As of June 30, 2017, the if-converted value of the Convertible Notes did not exceed the principal value of those Convertible Notes.
Upon conversion by the holders, the Company may elect to settle such conversion in shares of its common stock, cash, or a combination thereof. Because the Company may elect to settle conversion in cash, the Company separated the Convertible Notes into their liability and equity components by allocating the issuance proceeds to each of those components in accordance with Accounting Standards Codification (“ASC”) 470-20, “Debt-Debt with Conversion and Other Options”. The Company first determined the fair value of the liability component by estimating the value of a similar liability that does not have an associated equity component. The Company then deducted that amount from the issuance proceeds to arrive at a residual amount, which represents the equity component. The Company accounted for the equity component as a debt discount (with an offset to paid-in capital in excess of par value). The debt discount created by the equity component is being amortized as additional non-cash interest expense using the effective interest method over the contractual term of the Convertible Notes ending on July 1, 2022.
The Company allocated offering costs of $4.0 million to the debt and equity components in proportion to the allocation of proceeds to the components, treating them as debt issuance costs and equity issuance costs, respectively. The debt issuance costs of $3.0 million are being amortized as additional non-cash interest expense using the effective interest method over the contractual term of the Convertible Notes. The Company presents debt issuance costs as a direct deduction from the carrying value of the liability

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

component. The carrying value of the liability component at June 30, 2017, was $92.5 million, including total unamortized debt discount and debt issuance costs of $32.5 million. The $1.0 million portion of offering costs allocated to equity issuance costs was charged to paid-in capital. The carrying amount of the equity component was $19.7 million at June 30, 2017, net of issuance costs and taxes.
Interest expense recognized relating to the contractual interest coupon, amortization of debt discount and amortization of debt issuance costs on the Convertible Notes included in the accompanying condensed consolidated statements of income are as follows:
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(dollars in thousands)
Contractual interest coupon on convertible debt
 
$
870

 
$

 
$
1,430

 
$

Amortization of debt issuance costs
 
$
130

 
$

 
$
220

 
$

Amortization of "equity discount" related to debt
 
$
1,190

 
$

 
$
1,990

 
$

In connection with the issuance of the Convertible Notes, the Company entered into convertible note hedge transactions (the “Convertible Note Hedges”) in privately negotiated transactions with certain of the underwriters or their affiliates (in this capacity, the “option counterparties”). The Convertible Note Hedges provide the Company with the option to acquire, on a net settlement basis, 5,005,000 shares of its common stock, which is equal to the number of shares of common stock that notionally underlie the Convertible Notes, at a strike price of $24.98, which corresponds to the conversion price of the Convertible Notes. The Convertible Note Hedges have an expiration date that is the same as the maturity date of the Convertible Notes, subject to earlier exercise. The Convertible Note Hedges have customary anti-dilution provisions similar to the Convertible Notes. The Convertible Note Hedges have a default settlement method of net-share settlement but may be settled in cash or shares, depending on the Company’s method of settlement for conversion of the corresponding Convertible Notes. If the Company exercises the Convertible Note Hedges, the shares of common stock it will receive from the option counterparties to the Convertible Note Hedges will cover the shares of common stock that it would be required to deliver to the holders of the converted Convertible Notes in excess of the principal amount thereof. The aggregate cost of the Convertible Note Hedges was $29.0 million (or $7.5 million net of the total proceeds from the Warrants sold, as discussed below), before the allocation of issuance costs of approximately $0.7 million. The Convertible Note Hedges are accounted for as equity transactions in accordance with ASC 815-40, “Derivatives and Hedging-Contracts in Entity’s own Equity”.
In connection with the issuance of the Convertible Notes, the Company also sold net-share-settled warrants (the “Warrants”) in privately negotiated transactions with the option counterparties for the purchase of up to 5,005,000 shares of its common stock at a strike price of $29.60 per share, for total proceeds of $21.5 million. The Company also recorded the Warrants within shareholders’ equity in accordance with ASC 815-40. The Warrants have customary anti-dilution provisions similar to the Convertible Notes. As a result of the issuance of the Warrants, the Company will experience dilution to its diluted earnings per share if its average closing stock price exceeds $29.60 for any fiscal quarter. The Warrants expire on various dates from October 2022 through February 2023 and must be net-settled in shares of the Company’s common stock. Therefore, upon exercise of the Warrants, the Company will issue shares of its common stock to the purchasers of the Warrants that represent the value by which the price of the common stock exceeds the strike price stipulated within the particular warrant agreement.
ABL Facility
On December 22, 2015, the Company entered into an amended and restated loan agreement among the Company, Cequent Performance Products, Inc. (“Cequent Performance”), Cequent Consumer Products, Inc. (“Cequent Consumer”), Cequent UK Limited, Cequent Towing Products of Canada Ltd., certain other subsidiaries of the Company party thereto as guarantors, the lenders party thereto and Bank of America, N.A., as agent for the lenders (the “ABL Loan Agreement”), under which the lenders party thereto agreed to provide the Company and certain of its subsidiaries with a committed asset-based revolving credit facility (the “ABL Facility”) providing for revolving loans up to an aggregate principal amount of $99.0 million.
The ABL Loan Agreement provides for the increase of the U.S. sub-facility from an aggregate principal amount of $85.0 million to up to $94.0 million (subject to availability under a U.S.-specific borrowing base) (the “U.S. Facility”), and the establishment of two new sub-facilities, (i) a Canadian sub-facility, in an aggregate principal amount of up to $2.0 million (subject to availability

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

under a Canadian-specific borrowing base) (the “Canadian Facility”), and (ii) a U.K. sub-facility in an aggregate principal amount of up to $3.0 million (subject to availability under a U.K.-specific borrowing base) (the “U.K. Facility”). The ABL Facility also includes a $20.0 million letter of credit sub-facility, which matures on June 30, 2020.
Borrowings under the ABL Facility bear interest, at the Company’s election, at either (i) the Base Rate (as defined per the credit agreement, the “Base Rate”) plus the Applicable Margin (as defined per the credit agreement “Applicable Margin”), or (ii) the London Interbank Offered Rate (“LIBOR”) plus the Applicable Margin.
The Company incurs fees with respect to the ABL Facility, including (i) an unused line fee of 0.25% times the amount by which the revolver commitments exceed the average daily revolver usage during any month, (ii) facility fees equal to the applicable margin in effect for LIBOR revolving loans, as defined per the credit agreement, times the average daily stated amount of letters of credit, (iii) a fronting fee equal to 0.125% per annum on the stated amount of each letter of credit, and (iv) customary administrative fees.
All of the indebtedness of the U.S. Facility is and will be guaranteed by the Company’s existing and future material domestic subsidiaries and is and will be secured by substantially all of the assets of the Company and such guarantors. In connection with the ABL Loan Agreement, Cequent Performance and certain other subsidiaries of the Company party to the ABL Loan Agreement entered into a foreign facility guarantee and collateral agreement (the “Foreign Collateral Agreement”) in order to secure and guarantee the obligation under the Canadian Facility and the U.K. Facility. Under the Foreign Collateral Agreement, Cequent Performance and the other subsidiaries of the Company party thereto granted a lien on certain of their assets to Bank of America, N.A., as the agent for the lenders and other secured parties under the Canadian Facility and U.K. Facility.
The ABL Loan Agreement contains customary negative covenants, and does not include any financial maintenance covenants other than a springing minimum fixed charge coverage ratio of at least 1.00 to 1.00 on a trailing twelve-month basis, which will be tested only upon the occurrence of an event of default or certain other conditions as specified in the agreement. At June 30, 2017, the Company was in compliance with its financial covenants contained in the ABL Facility.
Debt issuance costs of approximately $2.5 million were incurred in connection with the entry into and amendment of the ABL Facility. These debt issuance costs will be amortized into interest expense over the contractual term of the loan. The Company recognized approximately $0.1 million and $0.2 million of amortization of debt issuance costs for the three and six months ended June 30, 2017, respectively, and approximately $0.1 million and $0.3 million for the three and six months ended June 30, 2016, respectively, which are included in the accompanying condensed consolidated statements of income. There were $1.6 million and $1.8 million of unamortized debt issuance costs included in other assets in the accompanying condensed consolidated balance sheets as of June 30, 2017 and December 31, 2016, respectively.
As of June 30, 2017, there was $20.0 million outstanding under the ABL Facility with a weighted average interest rate of 3.1%. As of December 31, 2016, there were no amounts outstanding under the ABL Facility. Total letters of credit issued were approximately $6.8 million and $7.0 million at June 30, 2017 and December 31, 2016, respectively. The Company had $71.8 million and $68.7 million in availability under the ABL Facility as of June 30, 2017 and December 31, 2016, respectively.
Term Loan
On June 30, 2015, the Company entered into a term loan agreement (“Original Term B Loan”) under which the Company borrowed an aggregate of $200.0 million, which matures on June 30, 2021. On September 19, 2016, the Company entered into the First Amendment to the Original Term B Loan (“Term Loan Amendment”), which amended the Term B Loan to provide for incremental commitments in an aggregate principal amount of $152.0 million (“Incremental Term Loans”) that were extended to the Company on October 3, 2016. The Original Term B Loan and Incremental Term Loans are collectively referred to as “Term B Loan”. On March 31, 2017, the Company entered into the Third Amendment to the Term B Loan (the “Replacement Term Loan Amendment”), which amended the Term B Loan to provide for a new term loan commitment (the “Replacement Term Loan”). The proceeds from the Replacement Term Loan were used to repay in full the outstanding principal amount of the Term B Loan. As a result of the Replacement Term Loan Amendment, the interest rate was reduced by 1.5% per annum. Additionally, quarterly principal payments required under the Original Term B Loan and Term Loan Amendment of $2.5 million and $2.1 million, respectively, were reduced to an aggregate quarterly principal payment of $1.9 million. On and after the Replacement Term Loan Amendment effective date, each reference to “Term B Loan” is deemed to be a reference to the Replacement Term Loan.
The Term B Loan permits the Company to request incremental term loan facilities, subject to certain conditions, in an aggregate principal amount, together with the aggregate principal amount of incremental equivalent debt incurred by the Company, of up to

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

$75.0 million, plus an additional amount such that the Company’s pro forma first lien net leverage ratio (as defined in the term loan agreement) would not exceed 3.50 to 1.00 as a result of the incurrence thereof.
Borrowings under the Term B Loan bear interest, at the Company’s election, at either (i) the Base Rate plus 3.5% per annum, or (ii) LIBOR, with a 1% floor, plus 4.5% per annum. Principal payments required under the Term B Loan are $1.9 million due each calendar quarter beginning June 2017. Commencing with the fiscal year ending December 31, 2017, and for each fiscal year thereafter, the Company will also be required to make prepayments of outstanding amounts under the Term B Loan in an amount up to 50.0% of the Company’s excess cash flow for such fiscal year, as defined in the Term B Loan, subject to adjustments based on the Company’s leverage ratio and optional prepayments of term loans and certain other indebtedness.
All of the indebtedness under the Term B Loan is and will be guaranteed by the Company’s existing and future material domestic subsidiaries and is and will be secured by substantially all of the assets of the Company and such guarantors. The Term B Loan contains customary negative covenants, and also contains a financial maintenance covenant which requires the Company to maintain a net leverage ratio not exceeding 5.25 to 1.00 through the fiscal quarter ending September 30, 2017, 5.00 to 1.00 through the fiscal quarter ending March 31, 2018, 4.75 to 1.00 through the fiscal quarter ending September 30, 2018; and thereafter, 4.50 to 1.00. At June 30, 2017, the Company was in compliance with its financial covenants as described in the Term B Loan.
During the first quarter of 2017, the Company used a portion of the net proceeds from the Convertible Notes offering as described above, along with proceeds from the Common Stock Offering as described in Note 10, “Earnings per Share”, to prepay a total of $177.0 million of the Term B Loan. In accordance with ASC 470, “Debt - Modifications and Extinguishments,” the prepayment was determined to be an extinguishment of the existing debt. As a result, the pro-rata share of the unamortized debt issuance costs and original issuance discount related to the prepayment, aggregating to $4.6 million, was recorded as a loss on the extinguishment of debt in the condensed consolidated statements of income. The remaining unamortized debt issuance costs and original issuance discount, including $2.4 million additional transactions fees incurred in connection to the Replacement Term Loan Amendment, was approximately $6.1 million. Both the aggregate debt issuance costs and the original issue discount will be amortized into interest expense over the remaining life of the Term B Loan. The Company recognized approximately $0.4 million and $0.8 million of amortization of debt issuance cost and original issue discount for the three and six months ended June 30, 2017, respectively and $0.3 million and $0.6 million for the three and six months ended June 30, 2016, respectively which is included in the accompanying condensed consolidated statements of income. The Company had an aggregate principal amount outstanding of $153.5 million and $337.0 million as of June 30, 2017 and December 31, 2016, respectively, under the Term B Loan bearing interest at 5.7% and 7.0%, respectively. The Company had $5.7 million and $8.7 million as of June 30, 2017 and December 31, 2016, respectively, of unamortized debt issuance costs and original issue discount, all of which are recorded as a reduction of the debt balance on the Company’s condensed consolidated balance sheets.
The Company’s Term B Loan traded at approximately 101.1% and 101.6% of par value as of June 30, 2017 and December 31, 2016, respectively. The valuation of the Term B Loan was determined based on Level 2 inputs under the fair value hierarchy.
Bank facilities
As of June 30, 2017, our Australian subsidiaries were party to a revolving debt facility with a borrowing capacity of approximately $11.5 million, which would mature on November 30, 2017, was subject to interest at a bank-specified rate plus 1.9% and was secured by substantially all the assets of the subsidiary. No amounts were outstanding as of June 30, 2017 and December 31, 2016 under this agreement.
On July 3, 2017, our Australian subsidiaries entered into a new agreement (collectively, the “Australian Loans”) to provide for revolving borrowings up to an aggregate principal amount of $31.4 million. The Australian Loans include two sub-facilities: (i) Facility A, with a borrowing capacity of $19.9 million which matures on July 3, 2020, to be used to fund all or part of the purchase price of the Best Bars Limited (“Best Bars”) acquisition (refer to Note 13, “Subsequent Events” for additional information) and other general purposes and (ii) Facility B, with a borrowing capacity of $11.5 million which matures on July 3, 2018, to be used for advances against the inventory and receivables of our Australian subsidiaries. Borrowings under Facility A bear interest at the Bank Bill Swap Bid Rate (“BBSY”) plus a margin determined based on the most recent net leverage ratio (as defined per the Australian credit agreement). The margin is to be determined on the first day of the period as follows: (i)1.10% per annum if the net leverage ratio is less than 1.50 to 1.00; (ii) 1.20% per annum if the net leverage ratio is less than 2.00 to 1.00 and (iii) 1.30% if the net leverage ratio is less than 2.50 to 1.00. Borrowings under Facility B bear interest at the BBSY plus a margin of 0.9% per annum.

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

The Australian Loans contain financial covenants, which require our Australian subsidiaries to maintain: (i) a net leverage ratio not exceeding 2.50 to 1.00 during the period commencing on the date of the agreement and ending on the first anniversary of the date of the agreement; and 2.00 to 1.00 thereafter; (ii) a working capital coverage ratio (as defined per the Australian credit agreement) greater than 1.75 to 1.00 at all times; and (iii) a gearing ratio (defined as the ratio of senior debt to senior debt plus equity) not to exceed 50%.
Other long-term debt consists of a bank credit line that provides liquidity for supplier payments for our Netherlands subsidiary which was entered into during the first quarter of 2016. The line provides total credit of $20.0 million. No amounts were outstanding under this credit line as of June 30, 2017 and $1.3 million was outstanding as of December 31, 2016, which is included in current maturities, long-term debt on the Company’s condensed consolidated balance sheets.
7. Derivative Instruments
Foreign Currency Exchange Rate Risk
As of June 30, 2017, the Company was party to forward contracts to hedge changes in foreign currency exchange rates with notional amounts of approximately $20.0 million. The Company uses foreign currency forward contracts to mitigate the risk associated with fluctuations in currency rates impacting cash flows related to certain payments for contract manufacturing in its lower-cost manufacturing facilities. The foreign currency forward contracts hedge currency exposure between the Mexican peso and the U.S. dollar, the Thai baht and the Australian dollar and the U.S. dollar and the Australian dollar and mature at specified monthly settlement dates through December 2017. At inception, the Company designated the foreign currency forward contracts as cash flow hedges. Upon purchase of certain inventories, the Company de-designates the foreign currency forward contract.
On October 4, 2016, the Company entered into a cross currency swap arrangement to hedge changes in foreign currency exchange rates. As of June 30, 2017, the notional amount of the cross currency swap was approximately $118.5 million. The Company uses the cross currency swap to mitigate the risk associated with fluctuations in currency rates impacting cash flows related to a non-U.S. denominated intercompany loan of €110.0 million. The cross currency swap hedges currency exposure between the Euro and the U.S. dollar and matures on January 3, 2019. The Company makes quarterly principal payments of €1.4 million, plus interest at a fixed rate of 5.4% per annum, in exchange for $1.5 million, plus interest at a fixed rate of 7.2% per annum. At inception, the Company designated the cross currency swap as a cash flow hedge. Changes in the currency rate result in reclassification of amounts from accumulated other comprehensive income to earnings to offset the re-measurement gain or loss on the non-U.S. denominated intercompany loan.
Additionally, during the second quarter of 2017, the Company entered into forward contracts to acquire a total of NZ$27.0 million, or $19.8 million, to hedge changes in foreign currency related to the purchase price of the Best Bars acquisition. Refer to Note 13, “Subsequent Events” for additional information. At inception, these forward contracts were not designated as hedging instruments.

15

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

Financial Statement Presentation
As of June 30, 2017 and December 31, 2016, the fair value carrying amount of the Company’s derivative instruments were recorded as follows:
 
 
 
 
Asset / (Liability) Derivatives
 
 
Balance Sheet Caption
 
June 30,
2017
 
December 31,
2016
 
 
 
 
(dollars in thousands)
Derivatives designated as hedging instruments
 
 
 
 
 
 
Foreign currency forward contracts
 
Prepaid expenses and other current assets
 
$
950

 
$
670

Foreign currency forward contracts
 
Accrued liabilities
 
(40
)
 
(760
)
Cross currency swap
 
Other assets
 

 
5,720

Cross currency swap
 
Other long-term liabilities
 
(3,330
)
 

Total derivatives designated as hedging instruments
 
 
 
(2,420
)
 
5,630

Derivatives not designated as hedging instruments
 
 
 
 
 
 
Foreign currency forward contracts
 
Prepaid expenses and other current assets
 
210

 

Foreign currency forward contracts
 
Accrued liabilities
 
(120
)
 
(130
)
Total derivatives de-designated as hedging instruments
 
 
 
90

 
(130
)
Total derivatives
 
 
 
$
(2,330
)
 
$
5,500

The following tables summarize the loss recognized in accumulated other comprehensive income (“AOCI”), the amounts reclassified from AOCI into earnings and the amounts recognized directly into earnings as of and for the three and six months ended June 30, 2017 and 2016:
 
Amount of Gain (Loss) Recognized in
AOCI on Derivatives
(Effective Portion, net of tax)
 
 
 
Amount of Loss Reclassified
from AOCI into Earnings
 
 
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
As of
June 30, 2017
 
As of December 31, 2016
 
Location of Loss Reclassified from AOCI into Earnings (Effective Portion)
 
2017
 
2016
 
2017
 
2016
 
(dollars in thousands)
 
 
 
(dollars in thousands)
Derivatives instruments
Foreign currency forward contracts
$
920

 
$
(320
)
 
Cost of sales
 
$
400

 
$
(360
)
 
$
260

 
$
(760
)
Cross currency swap
$
(600
)
 
$
(610
)
 
Other expense, net
 
$
(8,270
)
 
$

 
$
(9,750
)
 
$

Over the next 12 months, the Company expects to reclassify approximately $1.0 million of pre-tax deferred gains, related to the foreign currency forward contracts, from AOCI to cost of sales as the inventory purchases are settled. Over the next 12 months, the Company expects to reclassify approximately $1.0 million of pre-tax deferred losses, related to the cross currency swap, from AOCI to other expense, net as an offset to the re-measurement gains or losses on the non-U.S. denominated intercompany loan.

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

Derivatives not designated as hedging instruments
The gain or loss resulting from the change in fair value on de-designated forward contracts is reported within cost of sales on the Company’s condensed consolidated statements of income. There were no gains or losses on de-designated derivatives for the three months ended June 30, 2017 and $0.1 million of gains on de-designated derivatives for the six months ended June 30, 2017. The gains on de-designated derivatives amounted to $0.2 million and $0.1 million for the three and six months ended June 30, 2016, respectively. Gains or losses resulting from the change in fair value on the forward contracts entered into to hedge changes in foreign currency related to the purchase price of Best Bars are recorded within other expense, net on the Company’s condensed consolidated statements of income. The losses on these derivative instruments amounted to $0.1 million for the three and six months ended June 30, 2017, respectively.
Fair Value Measurements
The fair value of the Company’s derivatives are estimated using an income approach based on valuation techniques to convert future amounts to a single, discounted amount. Estimates of the fair value of the Company’s foreign currency forward contracts use observable inputs such as forward currency exchange rates. Fair value measurements and the fair value hierarchy level for the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016 are shown below.
 
 
Frequency
 
Asset / (Liability)
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
 
 
 
(dollars in thousands)
June 30, 2017
 
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
 
Recurring
 
$
1,000

 
$

 
$
1,000

 
$

Cross currency swap
 
Recurring
 
$
(3,330
)
 
$

 
$
(3,330
)
 
$

December 31, 2016
 
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
 
Recurring
 
$
(220
)
 
$

 
$
(220
)
 
$

Cross currency swap
 
Recurring
 
$
5,720

 
$

 
$
5,720

 
$

8. Segment Information
Horizon groups its operating segments into reportable segments by the region in which sales and manufacturing efforts are focused. Each operating segment has discrete financial information evaluated regularly by the Company’s chief operating decision maker in determining resource allocation and assessing performance. In the fourth quarter of 2016, as a result of the Westfalia Group acquisition, the Company realigned its executive management structure which changed the information used by our chief operating decision maker to assess performance and allocate resources. As a result, the Company reports the results of its business in three reportable segments: Horizon Americas, Horizon Europe‑Africa, and Horizon Asia‑Pacific. The Company’s Brazilian operations, which has previously been included in the Horizon International reportable segment, is now managed as part of its former Horizon North America segment, which has been renamed Horizon Americas. The Company’s Horizon Europe‑Africa reportable segment is comprised of the European and South African operations, previously included in Horizon International, and the Westfalia Group operations. The Company’s former Horizon International reportable segment, excluding the Brazilian operations, was geographically divided into two separate reportable segments. The Company’s Horizon Asia‑Pacific reportable segment is comprised of the Australia, Thailand, and New Zealand operations previously included in Horizon International. The Company has recast prior period amounts to conform to the way it currently manages and monitors segment performance under the new segments. See below for further information regarding the types of products and services provided within each reportable segment.
Horizon Americas - A market leader in the design, manufacture and distribution of a wide variety of high-quality, custom engineered towing, trailering and cargo management products and related accessories. These products are designed to support OEs, aftermarket and retail customers in the agricultural, automotive, construction, industrial, marine, military, recreational vehicle, trailer and utility end markets. Products include brake controllers, cargo management, heavy-duty towing products, jacks and couplers, protection/

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

securing systems, trailer structural and electrical components, tow bars, vehicle roof racks, vehicle trailer hitches and additional accessories.
Horizon Europe‑Africa - With a product offering similar to Horizon Americas, Horizon Europe‑Africa focuses its sales and manufacturing efforts in Europe and Africa.
Horizon Asia‑Pacific - With a product offering similar to Horizon Americas, Horizon Asia‑Pacific focuses its sales and manufacturing efforts in the Asia-Pacific region of the world.
Segment activity is as follows:
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(dollars in thousands)
Net Sales
 
 
 
 
 
 
 
 
Horizon Americas
 
$
138,110

 
$
128,820

 
$
235,940

 
$
239,440

Horizon Europe-Africa
 
86,580

 
13,840

 
165,120

 
26,550

Horizon Asia-Pacific
 
28,900

 
25,100

 
55,810

 
47,880

Total
 
$
253,590

 
$
167,760

 
$
456,870

 
$
313,870

Operating Profit (Loss)
 
 
 
 
 
 
 
 
Horizon Americas
 
$
22,750

 
$
12,700

 
$
27,910

 
$
22,720

Horizon Europe-Africa
 
3,610

 
80

 
3,270

 
390

Horizon Asia-Pacific
 
4,290

 
2,850

 
7,360

 
5,080

Corporate
 
(6,410
)
 
(4,510
)
 
(14,960
)
 
(9,260
)
Total
 
$
24,240

 
$
11,120

 
$
23,580

 
$
18,930

9. Equity Awards
Description of the Plan
Horizon employees and non-employee directors participate in the Horizon Global Corporation 2015 Equity and Incentive Compensation Plan (as amended and restated, the “Horizon 2015 Plan”). The Horizon 2015 Plan authorizes the Compensation Committee of the Horizon Board of Directors to grant stock options (including “incentive stock options” as defined in Section 422 of the U.S. Internal Revenue Code), restricted shares, restricted stock units, performance shares, performance units, cash incentive awards, and certain other awards based on or related to our common stock to Horizon employees and non-employee directors. No more than 2.0 million Horizon common shares may be delivered under the Horizon 2015 Plan.

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

Stock Options

The following table summarizes Horizon stock option activity from December 31, 2016 to June 30, 2017:

 
 
Number of
Stock Options
 
Weighted Average Exercise Price
 
Average  Remaining Contractual Life (Years)
 
Aggregate Intrinsic Value
Outstanding at December 31, 2016
 
347,585

 
$
10.37

 

 
 
  Granted
 

 

 

 
 
  Exercised
 
(3,638
)
 
10.40

 
 
 
 
  Canceled, forfeited
 

 

 
 
 
 
  Expired
 

 

 
 
 
 
Outstanding at June 30, 2017
 
343,947

 
$
10.37

 
8.3
 
$
1,370,915

As of June 30, 2017, there was $0.2 million in unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 0.6 years. The Company recognized approximately $0.1 million and $0.2 million of stock-based compensation expense related to stock options during the three and six months ended June 30, 2017, respectively and approximately $0.2 million and $0.4 million during the three and six months ended June 30, 2016, respectively. Stock-based compensation expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income.
Restricted Shares

During the first quarter of 2017, the Company granted an aggregate of 145,730 restricted stock units and performance stock units to certain key employees and non-employee directors. The total grants consisted of: (i) 22,449 time-based restricted stock units that vest ratably on (1) March 1, 2018, (2) March 1, 2019 and (3) March 1, 2020; (ii) 50,416 time-based restricted stock units that vest ratably on (1) March 1, 2018, (2) March 1, 2019, (3) March 1, 2020 and (4) March 1, 2021, and (iii) 72,865 market-based performance stock units that vest on March 1, 2020.

The performance criteria for the market-based performance stock units is based on the Company’s total shareholder return (“TSR”) relative to the TSR of the common stock of a pre-defined industry peer group, measured over a period beginning January 1, 2017 and ending December 31, 2019. TSR is calculated as the Company’s average closing stock price for the 20-trading days at the end of the performance period plus Company dividends, divided by the Company’s average closing stock price for the 20-trading days prior to the start of the performance period. Depending on the performance achieved, the amount of shares earned can vary from 0% of the target award to a maximum of 200% of the target award. The Company estimated the grant-date fair value of the awards subject to a market condition using a Monte Carlo simulation model, using the following weighted-average assumptions: risk-free interest rate of 1.52% and annualized volatility of 38.5%. Due to the lack of adequate stock price history of Horizon common stock, the expected volatility is based on the historical volatility of the common stock of the peer group. The grant date fair value of the performance stock units was $18.41.

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


The grant date fair value of restricted shares is expensed over the vesting period. Restricted share fair values are based on the closing trading price of the Company’s common stock on the date of grant. Changes in the number of restricted shares outstanding for the period ended June 30, 2017 were as follows:
 
 
Number of Restricted Shares
 
Weighted Average Grant Date Fair Value
Outstanding at December 31, 2016
 
557,563

 
$
11.89

  Granted
 
145,730

 
18.35

  Vested
 
(112,376
)
 
12.77

  Canceled, forfeited
 

 

Outstanding at June 30, 2017
 
590,917

 
$
13.32

As of June 30, 2017, there was $4.3 million in unrecognized compensation costs related to unvested restricted shares that is expected to be recognized over a weighted-average period of 1.0 year.
The Company recognized approximately $0.8 million and $1.6 million of stock-based compensation expense related to restricted shares during the three and six months ended June 30, 2017, respectively, and approximately $0.7 million and $1.4 million during the three and six months ended June 30, 2016, respectively. Stock-based compensation expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income.
10. Earnings per Share
Basic earnings per share is computed using net income attributable to Horizon Global and the number of weighted average shares outstanding. On February 1, 2017, the Company completed an underwritten public offering of 4.6 million shares of common stock, which includes the exercise in full by the underwriters of their option to purchase 0.6 million shares of common stock, at a public offering price of $18.50 per share (the “Common Stock Offering”). Proceeds from the Common Stock Offering were approximately $79.9 million, net of underwriting discounts, commissions, and offering-related transaction costs. Diluted earnings per share is computed using net income attributable to Horizon Global and the number of weighted average shares outstanding, adjusted to give effect to the assumed exercise of outstanding stock options and warrants, vesting of restricted shares outstanding, and conversion of the Convertible Notes. The following table sets forth the reconciliation of the numerator and the denominator of basic earnings per share attributable to Horizon Global and diluted earnings per share attributable to Horizon Global for the three and six months ended June 30, 2017 and 2016:
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(dollars in thousands, except for per share amounts)
Numerator:
 
 
 
 
 
 
 
 
Net income attributable to Horizon Global
 
$
20,260

 
$
7,330

 
$
10,400

 
$
9,520

Denominator:
 
 
 
 
 
 
 
 
Weighted average shares outstanding, basic
 
25,385,395

 
18,162,451

 
24,616,939

 
18,130,081

Dilutive effect of stock-based awards
 
357,682

 
156,617

 
427,714

 
130,165

Weighted average shares outstanding, diluted
 
25,743,077

 
18,319,068

 
25,044,653

 
18,260,246

 
 
 
 
 
 
 
 
 
Basic earnings per share attributable to Horizon Global
 
$
0.80

 
$
0.40

 
$
0.42

 
$
0.53

Diluted earnings per share attributable to Horizon Global
 
$
0.79

 
$
0.40

 
$
0.42

 
$
0.52


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

The effect of certain common stock equivalents were excluded from the computation of weighted average diluted shares outstanding for the three and six months ended June 30, 2017 and 2016, as inclusion would have resulted in anti-dilution. A summary of these anti-dilutive common stock equivalents is provided in the table below:
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
Number of options
 

 
298,576

 

 
310,521

Exercise price of options
 

 
$10.08 - $11.02

 

 
$9.20 - $11.29

Restricted stock units
 
145,730

 
71,132

 
98,227

 
47,243

Convertible Notes
 
5,005,000

 

 
4,120,138

 

Warrants
 
5,005,000

 

 
4,120,138

 

For purposes of determining diluted earnings per share, the Company has elected a policy to assume that the principal portion of the Convertible Notes, as described in Note 6, “Long-term Debt,” is settled in cash and the conversion premium is settled in shares. Therefore, the Company has adopted a policy of calculating the diluted earnings per share effect of the Convertible Notes using the treasury stock method. As a result, the dilutive effect of the Convertible Notes is limited to the conversion premium, which is reflected in the calculation of diluted earnings per share as if it were a freestanding written call option on the Company’s shares. Using the treasury stock method, the Warrants issued in connection with the issuance of the Convertible Notes are considered to be dilutive when they are in the money relative to the Company’s average common stock price during the period. The Convertible Note Hedges purchased in connection with the issuance of the Convertible Notes are always considered to be anti-dilutive and therefore do not impact the Company’s calculation of diluted earnings per share.
11. Shareholders’ Equity
Preferred Stock
The Company is authorized to issue 100,000,000 shares of Horizon Global preferred stock, par value of $0.01 per share. There were no preferred shares outstanding at June 30, 2017 or December 31, 2016.
Common Stock
The Company is authorized to issue 400,000,000 shares of Horizon Global common stock, par value of $0.01 per share. At June 30, 2017, there were 25,011,541 shares of common stock issued and outstanding, net of 570,365 in treasury shares. At December 31, 2016, there were 20,899,959 shares of common stock issued and outstanding.
Share Repurchase Program
In April 2017, the Board of Directors authorized a share repurchase program of up to 1.5 million shares of the Company’s issued and outstanding common stock during the period beginning on May 5, 2017 and ending May 5, 2020 (the “Share Repurchase Program”). The Share Repurchase Program provides for share purchases in the open market or otherwise, depending on share price, market conditions and other factors, as determined by the Company. In addition, the Company’s ABL Loan Agreement and Replacement Term Loan Amendment place certain limitations on the Company’s ability to repurchase its common stock. As of June 30, 2017, cumulative shares purchased totaled 570,365 at an average purchase price per share of $14.64, excluding commissions. Subsequent to June 30, 2017, the Company purchased an additional 116,141 shares at an average purchase price per share of $14.09, excluding commissions. The repurchased shares are presented as treasury stock, at cost, on the condensed consolidated balance sheets.

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

Accumulated Other Comprehensive Income
Changes in AOCI by component, net of tax, for the six months ended June 30, 2017 are summarized as follows:
 
 
 Derivative Instruments
 
Foreign Currency Translation
 
Total
 
 
(dollars in thousands)
Balance at December 31, 2016
 
$
(930
)
 
$
(7,410
)
 
$
(8,340
)
Net unrealized gains (losses) arising during the period (a)
 
(4,820
)
 
13,490

 
8,670

Less: Net realized losses reclassified to net income (b)
 
(6,070
)
 

 
(6,070
)
Net current-period change
 
1,250

 
13,490

 
14,740

Balance at June 30, 2017
 
$
320

 
$
6,080

 
$
6,400

__________________________
(a) Derivative instruments, net of income tax benefit of $3.6 million. See Note 7, “Derivative Instruments,” for further details.
(b) Derivative instruments, net of income tax benefit of $3.4 million. See Note 7, “Derivative Instruments,” for further details.
Changes in AOCI by component, net of tax, for the six months ended June 30, 2016 are summarized as follows:
 
 
 Derivative Instruments
 
Foreign Currency Translation
 
Total
 
 
(dollars in thousands)
Balance at December 31, 2015
 
$
(710
)
 
$
3,180

 
$
2,470

Net unrealized gains (losses) arising during the period
 
(330
)
 
300

 
(30
)
Less: Net realized losses reclassified to net income (a)
 
(730
)
 

 
(730
)
Net current-period change
 
400

 
300

 
700

Balance at June 30, 2016
 
$
(310
)
 
$
3,480

 
$
3,170

__________________________
(a) Derivative instruments, net of income tax benefit of $30.0 thousand. See Note 7, “Derivative Instruments,” for further details.
12. Income Taxes
At the end of each interim reporting period, the Company makes an estimate of the annual effective income tax rate. Tax items included in the annual effective income tax rate are pro-rated for the full year and tax items discrete to a specific quarter are included in the effective income tax rate for that quarter. The estimate used in providing for income taxes on a year-to-date basis may change in subsequent interim periods. The Company has experienced pre-tax losses in the U.S. In light of the losses, the Company evaluates the realizability of its deferred tax assets on a quarterly basis. In completing this evaluation, the Company considers all available evidence in order to determine whether, based on the weight of the evidence a valuation allowance is necessary. As of June 30, 2017, we believe that it is more likely than not that the U.S. deferred tax assets will be realized. If the U.S. business continues to experience losses through 2017, management may determine a valuation allowance against the U.S. deferred tax assets is necessary, which would result in significant tax expense in the period recognized, as well as subsequent periods.
The effective income tax rate was (9.0)% and (49.1)% for the three and six months ended June 30, 2017, respectively. For the three and six months ended June 30, 2016, the effective income tax rates were (15.8)% and (2.8)%, respectively. The higher effective income tax rate in the three months ended June 30, 2017 is driven by a higher portion of income earned in jurisdictions with higher statutory rates. The lower effective income tax rate in the six months ended June 30, 2017 is driven by the recognition of the income tax benefits associated with stock awards issued and the release of certain unrecognized tax positions.

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

During the six months ended June 30, 2017 and 2016, cash paid for domestic taxes was approximately $1.9 million and $1.4 million, respectively. During the six months ended June 30, 2017 and 2016, the Company paid cash for foreign taxes of $2.8 million and $1.8 million, respectively.
13. Subsequent Events
On July 3, 2017, the Company completed the acquisition of Best Bars for cash consideration of $19.7 million. Best Bars is a provider of towing solutions and automotive accessories in New Zealand with annual sales of approximately $16.1 million. The acquisition was financed with $19.9 million of borrowings by the Company's Australia subsidiaries (refer to Note 6, "Long-term Debt" for additional information).
The acquisition of Best Bars will be accounted for as a business combination, and the assets acquired and liabilities assumed will be recognized and measured as of the acquisition date at fair value. The operating results and cash flows of Best Bars will be included in the consolidated financial statements from the date of acquisition. The Company is in the process of preparing the preliminary estimate of the fair value of assets acquired and liabilities assumed, which will be included in the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017.


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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition contains forward-looking statements regarding industry outlook and our expectations regarding the performance of our business. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under the heading “Forward-Looking Statements,” at the beginning of this report. Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following discussion together with the Company’s reports on file with the Securities and Exchange Commission, as well as our Annual Report on Form 10-K for the year ended December 31, 2016 (See Item 1A. Risk Factors).
Overview
We are a leading designer, manufacturer and distributor of a wide variety of high-quality, custom-engineered towing, trailering, cargo management and other related accessory products on a global basis, serving the automotive aftermarket, retail and OE channels.
On October 4, 2016, we completed our acquisition of Westfalia Group. The Westfalia Group is a leading global towing company. Headquartered in Rheda-Wiedenbrück, Germany, with operating facilities in 11 countries, it manufactures towing and trailering products, including more than 1,700 different types of towbars, wiring kits and carrier systems for cars and light utility vehicles. It holds in excess of 300 issued patents and published patent applications protecting its unique line of towing and trailering products. The brands under which it markets its products include Westfalia, Terwa and Siarr. The acquisition of the Westfalia Group positions us as a leading manufacturer of towing and trailering equipment in Europe and further complements our broad portfolio.
Our business is comprised of three reportable segments: Horizon Americas, Horizon Europe-Africa, and Horizon Asia-Pacific. Horizon Americas has historically operated primarily in North America, and we believe has been a leader in towing and trailering-related products sold through retail, aftermarket, OE and e-commerce channels. In recent years, Horizon Americas expanded its geographic footprint into the South American market. Horizon Europe-Africa and Horizon Asia-Pacific focus their sales and manufacturing efforts outside of North and South America, historically operating primarily in Europe and Australia, respectively, and we believe have been leaders in towing related products sold through the OE and aftermarket channels. We have expanded our footprint into New Zealand, Thailand, the United Kingdom, and South Africa. We are in the early stages of our development in these markets, initially focusing primarily on supporting OE customers.
Our products are used in two primary categories across the world: commercial applications, or “Work”, and recreational activities, or “Play”. Some of the markets in our Work category include agricultural, automotive, construction, fleet, industrial, marine, military, mining and municipalities. Some of the markets in our Play category include equestrian, power sports, recreational vehicle, specialty automotive, truck accessory and other specialty towing applications.
Key Factors and Risks Affecting Our Reported Results.  Our products are sold into a diverse set of end-markets; the primary applications relate to automotive accessories for light and recreational vehicles. Purchases of automotive accessory parts are discretionary and we believe demand is driven by macro-economic factors including, (i) employment trends, (ii) consumer sentiment, and (iii) fuel prices, among others. We believe all of these metrics impact both our Work- and Play-related sales. In addition, we believe the Play-related sales are more sensitive to changes in these indices, given the Play-related sales tend to be more directly related to disposable income levels. In general, recent decreases in unemployment and fuel prices, coupled with increases in consumer sentiment, are positive trends for our businesses.
Critical factors affecting our ability to succeed include: our ability to realize the expected economic benefits of structural realignment of manufacturing facilities and business units; our ability to quickly and cost-effectively introduce new products; our ability to acquire and integrate companies or products that supplement existing product lines, add new distribution channels and expand our geographic coverage; our ability to manage our cost structure more efficiently via supply base management, internal sourcing and/or purchasing of materials, selective outsourcing and/or purchasing of support functions, working capital management, and leverage of our administrative functions. If we are unable to do any of the foregoing successfully, our financial condition and results of operations could be materially and adversely impacted.
We experience some seasonality in our business. Sales of towing and trailering products in the northern hemisphere, where we generate the majority of our sales, are generally stronger in the second and third calendar quarters, as trailer OEs, distributors and retailers acquire product for the spring and summer selling seasons. Our growing businesses in the southern hemisphere are stronger in the first and fourth calendar quarters. We do not consider order backlog to be a material factor in our businesses.

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Table of Contents

We are sensitive to price movements in our raw materials supply base. Our largest material purchases are for steel, copper, and aluminum. We also consume a significant amount of energy via utilities in our facilities. Historically, when we have experienced increasing costs of steel, we have successfully worked with our suppliers to manage cost pressures and disruptions in supply. Price increases used to offset inflation or a disruption of supply in core materials have generally been successful, although sometimes delayed. Increases in price for these purposes represent a risk in execution.
We report shipping and handling expenses associated with our Horizon Americas reportable segment’s distribution network as an element of selling, general and administrative expenses in our condensed consolidated statements of income. As such, gross margins for the Horizon Americas reportable segment may not be comparable to those of our Horizon Asia-Pacific and Horizon Europe-Africa segments, which primarily rely on third-party distributors, for which all costs are included in cost of sales.

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Segment Information and Supplemental Analysis
The following table summarizes financial information for our reportable segments for the three months ended June 30, 2017 and 2016:
 
 
Three months ended June 30,
 
 
2017
 
As a Percentage
of Net Sales
 
2016
 
As a Percentage
of Net Sales
 
 
(dollars in thousands)
Net Sales
 
 
 
 
 
 
 
 
Horizon Americas
 
$
138,110

 
54.5
 %
 
$
128,820

 
76.8
%
Horizon Europe-Africa
 
86,580

 
34.1
 %
 
13,840

 
8.2
%
Horizon Asia-Pacific
 
28,900

 
11.4
 %
 
25,100

 
15.0
%
Total
 
$
253,590

 
100.0
 %
 
$
167,760

 
100.0
%
Gross Profit
 
 
 
 
 
 
 
 
Horizon Americas
 
$
44,870

 
32.5
 %
 
$
38,120

 
29.6
%
Horizon Europe-Africa
 
15,140

 
17.5
 %
 
2,370

 
17.1
%
Horizon Asia-Pacific
 
7,660

 
26.5
 %
 
5,220

 
20.8
%
Total
 
$
67,670

 
26.7
 %
 
$
45,710

 
27.2
%
Selling, General and Administrative Expenses
 
 
 
 
 
 
 
 
Horizon Americas
 
$
22,090

 
16.0
 %
 
$
23,050

 
17.9
%
Horizon Europe-Africa
 
11,480

 
13.3
 %
 
2,030

 
14.7
%
Horizon Asia-Pacific
 
3,380

 
11.7
 %
 
2,380

 
9.5
%
Corporate
 
6,410

 
N/A

 
4,510

 
N/A

Total
 
$
43,360

 
17.1
 %
 
$
31,970

 
19.1
%
Net Loss on Disposition of Property and Equipment
 
 
 
 
 
 
 
 
Horizon Americas
 
$
(40
)
 
 %
 
$
(130
)
 
(0.1
%)
Horizon Europe-Africa
 
(20
)
 
 %
 
(210
)
 
(1.5
%)
Horizon Asia-Pacific
 

 
 %
 
(40
)
 
(0.2
%)
Corporate
 
(10
)
 
N/A

 

 
N/A

Total
 
$
(70
)
 
 %
 
$
(380
)
 
(0.2
%)
Operating Profit (Loss)
 
 
 
 
 
 
 
 
Horizon Americas
 
$
22,750

 
16.5
 %
 
$
12,700

 
9.9
%
Horizon Europe-Africa
 
3,610

 
4.2
 %
 
80

 
0.6
%
Horizon Asia-Pacific
 
4,290

 
14.8
 %
 
2,850

 
11.4
%
Corporate
 
(6,410
)
 
N/A

 
(4,510
)
 
N/A

Total
 
$
24,240

 
9.6
 %
 
$
11,120

 
6.6
%
Depreciation and Amortization
 
 
 
 
 
 
 
 
Horizon Americas
 
$
2,750

 
2.0
 %
 
$
2,750

 
2.1
%
Horizon Europe-Africa
 
1,920

 
2.2
 %
 
490

 
3.5
%
Horizon Asia-Pacific
 
940

 
3.3
 %
 
1,020

 
4.1
%
Corporate
 
60

 
N/A

 

 
N/A

Total
 
$
5,670

 
2.2
 %
 
$
4,260

 
2.5
%

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Table of Contents

The following table summarizes financial information for our reportable segments for the six months ended June 30, 2017 and 2016:
 
 
Six months ended June 30,
 
 
2017
 
As a Percentage
of Net Sales
 
2016
 
As a Percentage
of Net Sales
 
 
(dollars in thousands)
Net Sales
 
 
 
 
 
 
 
 
Horizon Americas
 
$
235,940

 
51.7
 %
 
$
239,440

 
76.2
%
Horizon Europe-Africa
 
165,120

 
36.1
 %
 
26,550

 
8.5
%
Horizon Asia-Pacific
 
55,810

 
12.2
 %
 
47,880

 
15.3
%
Total
 
$
456,870

 
100.0
 %
 
$
313,870

 
100.0
%
Gross Profit
 
 
 
 
 
 
 
 
Horizon Americas
 
$
71,550

 
30.3
 %
 
$
68,700

 
28.7
%
Horizon Europe-Africa
 
27,700

 
16.8
 %
 
4,420

 
16.6
%
Horizon Asia-Pacific
 
13,810

 
24.7