UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-Q



(Mark One)
x		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended ~~September~~June 30, ~~2017~~2018
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 ~~October 27, 2017,~~August 3, 2018, the number of outstanding shares of the Registrant’s common stock, par value $0.01 per share, was ~~24,937,976~~25,095,757 shares.

HORIZON GLOBAL CORPORATION

Index



Part I.	Financial Information

		Forward-Looking Statements	2

	Item 1.	Condensed Consolidated Financial Statements	3

		Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017	3

		Condensed Consolidated Statements of Income (Loss) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	4

		Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	5

		Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	6

		Condensed Consolidated Statements of Shareholders’ Equity for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018	7

		Notes to Condensed Consolidated Financial Statements	8

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2228

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3342

	Item 4.	Controls and Procedures	3442

Part II.	Other Information

	Item 1.	Legal Proceedings	3543

	Item 1A.	Risk Factors	3543

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3543

	Item 3.	Defaults Upon Senior Securities	3643

	Item 4.	Mine Safety Disclosures	3643

	Item 5.	Other Information	3643

	Item 6.	Exhibits	3744

	Signatures		3845

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;~~actions including the impact of any tariffs, quotas or surcharges; the Company’s accounting policies; future trends; general economic and currency conditions; various conditions specific to the Company’s business and industry; 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.~~2017. 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.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

HORIZON GLOBAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands)


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
	(unaudited)						(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	20,470		$	50,240		$	28,890		$	29,570
Receivables, net of reserves of approximately $4.1 million and $3.8 million at September 30, 2017 and December 31, 2016, respectively	112,360			77,570
Receivables, net of reserves of approximately $4.3 million and $3.1 million at June 30, 2018 and December 31, 2017, respectively							128,480			91,770
Inventories	162,660			146,020			167,530			171,500
Prepaid expenses and other current assets	10,200			12,160			10,710			10,950
Total current assets	305,690			285,990			335,610			303,790
Property and equipment, net	110,830			93,760			108,430			113,020
Goodwill	145,910			120,190			37,710			138,190
Other intangibles, net	92,780			86,720			83,770			90,230
Deferred income taxes	10,790			9,370			5,380			4,290
Other assets	10,810			17,340			9,640			11,510
Total assets	$	676,810		$	613,370		$	580,540		$	661,030
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities, long-term debt	$	9,510		$	22,900		$	10,170		$	16,710
Accounts payable	111,380			111,450			140,160			138,730
Accrued liabilities	68,060			63,780			60,850			53,070
Total current liabilities	188,950			198,130			211,180			208,510
Long-term debt	269,710			327,040			310,720			258,880
Deferred income taxes	31,730			25,730			13,840			14,870
Other long-term liabilities	28,790			30,410			29,720			38,370
Total liabilities	519,180			581,310			565,460			520,630
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: 24,936,110 shares at September 30, 2017 and 20,899,959 shares at December 31, 2016	250			210
Common stock, $0.01 par: Authorized 400,000,000 shares; 25,710,158 shares issued and 25,023,652 outstanding at June 30, 2018, respectively, and 25,625,571 shares issued and 24,939,065 outstanding at December 31, 2017, respectively							250			250
Paid-in capital	158,270			54,800			160,490			159,490
Treasury stock, at cost: 686,506 shares at September 30, 2017 and no shares at December 31, 2016	(10,000		)	—
Retained earnings (accumulated deficit)	2,980			(14,310		)
Accumulated other comprehensive income (loss)	7,330			(8,340		)
Treasury stock, at cost: 686,506 shares at June 30, 2018 and December 31, 2017							(10,000		)	(10,000		)
Accumulated deficit							(142,300		)	(17,860		)
Accumulated other comprehensive income							8,680			10,010
Total Horizon Global shareholders' equity	158,830			32,360			17,120			141,890
Noncontrolling interest	(1,200		)	(300		)	(2,040		)	(1,490		)
Total shareholders' equity	157,630			32,060			15,080			140,400
Total liabilities and shareholders' equity	$	676,810		$	613,370		$	580,540		$	661,030

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

HORIZON GLOBAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(unaudited—dollars in thousands, except for per share amounts)


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Net sales	$	240,120		$	151,720		$	696,990		$	465,590		$	233,340		$	253,590		$	450,150		$	456,870
Cost of sales	(181,700		)	(109,210		)	(525,510		)	(339,760		)	(185,770		)	(185,920		)	(364,130		)	(343,810		)
Gross profit	58,420			42,510			171,480			125,830			47,570			67,670			86,020			113,060
Selling, general and administrative expenses	(44,800		)	(35,850		)	(134,280		)	(97,510		)	(56,010		)	(43,430		)	(104,300		)	(89,480		)
Impairment of intangible assets	—			—			—			(2,240		)
Net loss on dispositions of property and equipment	(330		)	(30		)	(330		)	(520		)
Operating profit	13,290			6,630			36,870			25,560
Impairment													(55,700		)	—			(99,130		)	—
Operating profit (loss)													(64,140		)	24,240			(117,410		)	23,580
Other expense, net:
Interest expense	(5,540		)	(4,100		)	(16,650		)	(12,600		)	(6,190		)	(5,220		)	(12,140		)	(11,110		)
Loss on extinguishment of debt	—			—			(4,640		)	—			—			—			—			(4,640		)
Other expense, net	(1,310		)	(1,000		)	(2,560		)	(2,170		)	(6,610		)	(700		)	(7,730		)	(1,250		)
Other expense, net	(6,850		)	(5,100		)	(23,850		)	(14,770		)	(12,800		)	(5,920		)	(19,870		)	(17,000		)
Income before income tax benefit (expense)	6,440			1,530			13,020			10,790
Income tax benefit (expense)	120			(1,160		)	3,350			(900		)
Net income	6,560			370			16,370			9,890
Income (loss) before income tax benefit													(76,940		)	18,320			(137,280		)	6,580
Income tax benefit													9,780			1,650			12,360			3,230
Net income (loss)													(67,160		)	19,970			(124,920		)	9,810
Less: Net loss attributable to noncontrolling interest	(330		)	—			(920		)	—			(230		)	(290		)	(480		)	(590		)
Net income attributable to Horizon Global	$	6,890		$	370		$	17,290		$	9,890
Net income per share attributable to Horizon Global:
Net income (loss) attributable to Horizon Global													$	(66,930	)	$	20,260		$	(124,440	)	$	10,400
Net income (loss) per share attributable to Horizon Global:
Basic	$	0.28		$	0.02		$	0.70		$	0.55		$	(2.68	)	$	0.80		$	(4.98	)	$	0.42
Diluted	$	0.27		$	0.02		$	0.69		$	0.54		$	(2.68	)	$	0.79		$	(4.98	)	$	0.42
Weighted average common shares outstanding:
Basic	24,948,410			18,174,509			24,728,643			18,144,998			25,017,725			25,385,395			24,990,573			24,616,939
Diluted	25,379,252			18,519,077			25,154,800			18,333,226			25,017,725			25,743,077			24,990,573			25,044,653

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

HORIZON GLOBAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited—dollars in thousands)

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Net income $ 6,560
$ 370
$ 16,370
$ 9,890
Other comprehensive income (loss), net of tax:
Foreign currency translation 2,020
830
15,520
1,130
Derivative instruments (Note 8) (1,080 ) (30 ) 170
370
Total other comprehensive income 940
800
15,690
1,500
Total comprehensive income 7,500
1,170
32,060
11,390
Less: Comprehensive loss attributable to noncontrolling interest (320 ) —
(900 ) —
Comprehensive income attributable to Horizon Global
$ 7,820
$ 1,170
$ 32,960
$ 11,390



	Three months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017
Net income (loss)	$	(67,160	)	$	19,970		$	(124,920	)	$	9,810
Other comprehensive income (loss), net of tax:
Foreign currency translation	(6,880		)	5,780			(3,720		)	13,500
Derivative instruments (Note 9)	790			270			2,320			1,250
Total other comprehensive income (loss)	(6,090		)	6,050			(1,400		)	14,750
Total comprehensive income (loss)	(73,250		)	26,020			(126,320		)	24,560
Less: Comprehensive loss attributable to noncontrolling interest	(310		)	(280		)	(550		)	(580		)
Comprehensive income (loss) attributable to Horizon Global	$	(72,940	)	$	26,300		$	(125,770	)	$	25,140

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

HORIZON GLOBAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited—dollars in thousands)


	Nine months ended September 30,						Six months ended June 30,
	2017			2016			2018			2017
Cash Flows from Operating Activities:
Net income	$	16,370		$	9,890
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Net income (loss)							$	(124,920	)	$	9,810
Adjustments to reconcile net income (loss) to net cash used for operating activities:
Net loss on dispositions of property and equipment	330			520			380			—
Depreciation	10,280			7,490			8,240			6,510
Amortization of intangible assets	7,660			5,480			4,140			4,960
Impairment of intangible assets	—			2,240
Impairment of goodwill and intangible assets							99,130			—
Amortization of original issuance discount and debt issuance costs	5,090			1,390			3,870			3,240
Deferred income taxes	840			(1,500		)	(1,850		)	970
Loss on extinguishment of debt	4,640			—			—			4,640
Non-cash compensation expense	2,760			2,840			1,210			1,830
Amortization of purchase accounting inventory step-up	420			—
Increase in receivables	(28,360		)	(8,260		)	(40,450		)	(40,380		)
(Increase) decrease in inventories	(7,920		)	19,920			530			(5,570		)
(Increase) decrease in prepaid expenses and other assets	3,490			(1,670		)
Decrease in accounts payable and accrued liabilities	(17,440		)	(10,040		)
Decrease in prepaid expenses and other assets							1,510			970
Increase (decrease) in accounts payable and accrued liabilities							12,590			(1,460		)
Other, net	(480		)	(790		)	260			(110		)
Net cash provided by (used for) operating activities	(2,320		)	27,510
Net cash used for operating activities							(35,360		)	(14,590		)
Cash Flows from Investing Activities:
Capital expenditures	(20,270		)	(10,090		)	(7,790		)	(13,340		)
Acquisition of businesses, net of cash acquired	(19,800		)	—
Net proceeds from disposition of property and equipment	1,080			240			140			940
Net cash used for investing activities	(38,990		)	(9,850		)	(7,650		)	(12,400		)
Cash Flows from Financing Activities:
Proceeds from borrowings on credit facilities	36,970			40,160			2,630			220
Repayments of borrowings on credit facilities	(41,630		)	(39,030		)	(8,670		)	(2,890		)
Repayments of borrowings on Term B Loan, inclusive of transaction costs	(187,820		)	(7,500		)	(3,940		)	(185,800		)
Proceeds from ABL Revolving Debt	114,500			105,230			66,110			82,400
Repayments of borrowings on ABL Revolving Debt	(94,500		)	(98,430		)	(13,510		)	(62,400		)
Proceeds from issuance of common stock, net of offering costs	79,920			—			—			79,920
Repurchase of common stock	(10,000		)	—			—			(8,360		)
Proceeds from issuance of Convertible Notes, net of issuance costs	121,130			—			—			120,950
Proceeds from issuance of Warrants, net of issuance costs	20,930			—			—			20,930
Payments on Convertible Note Hedges, inclusive of issuance costs	(29,680		)	—			—			(29,680		)
Other, net	(240		)	(230		)	(210		)	(240		)
Net cash provided by financing activities	9,580			200			42,410			15,050
Effect of exchange rate changes on cash	1,960			40			(80		)	1,270
Cash and Cash Equivalents:
Increase (decrease) for the period	(29,770		)	17,900
Decrease for the period							(680		)	(10,670		)
At beginning of period	50,240			23,520			29,570			50,240
At end of period	$	20,470		$	41,420		$	28,890		$	39,570
Supplemental disclosure of cash flow information:
Cash paid for interest	$	10,090		$	11,180		$	7,550		$	7,220
Cash paid for taxes							$	3,770		$	4,720

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

HORIZON GLOBAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018

(unaudited—dollars in thousands)

Common
Stock Paid-in
Capital Treasury Stock Retained Earnings (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) —
—
—
17,290
—
17,290
(920 ) 16,370
Other comprehensive income, net of tax —
—
—
—
15,670
15,670
20
15,690
Issuance of common stock, net of issuance costs 40
79,880
—
—
—
79,920
—
79,920
Repurchase of common stock —
—
(10,000 ) —
—
(10,000 ) —
(10,000 )
Shares surrendered upon vesting of employees' share based payment awards to cover tax obligations —
(240 ) —
—
—
(240 ) —
(240 )
Non-cash compensation expense —
2,760
—
—
—
2,760
—
2,760
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 —
19,690
—
—
—
19,690
—
19,690
Convertible Note Hedges, net of issuance costs and tax —
(19,550 ) —
—
—
(19,550 ) —
(19,550 )
Balance at September 30, 2017 $ 250
$ 158,270
$ (10,000 ) $ 2,980
$ 7,330
$ 158,830
$ (1,200 ) $ 157,630



	Common Stock		Paid-in Capital			Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Income			Total Horizon Global Shareholders’ Equity			Noncontrolling Interest			Total Shareholders’ Equity
Balance at December 31, 2017	$	250	$	159,490		$	(10,000	)	$	(17,860	)	$	10,010		$	141,890		$	(1,490	)	$	140,400
Net loss	—		—			—			(124,440		)	—			(124,440		)	(480		)	(124,920		)
Other comprehensive income, net of tax	—		—			—			—			(1,330		)	(1,330		)	(70		)	(1,400		)
Shares surrendered upon vesting of employees' share based payment awards to cover tax obligations	—		(210		)	—			—			—			(210		)	—			(210		)
Non-cash compensation expense	—		1,210			—			—			—			1,210			—			1,210
Balance at June 30, 2018	$	250	$	160,490		$	(10,000	)	$	(142,300	)	$	8,680		$	17,120		$	(2,040	)	$	15,080

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

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 9,10, “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~~the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. 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 ~~August 2017,~~June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, “Compensation - Stock Compensation (Topic 718)” (“ASU 2018-07”). ASU 2018-07 expands the scope of Accounting Standard Codification (“ASC”) 718 to include all share-based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. ASU 2018-07 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 with early adoption permitted. The Company is in process of assessing the impact of the adoption of ASU 2018-07 on the condensed consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”). ASU 2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “2017 Tax Act”). ASU 2018-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. It must be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate from the 2017 Tax Act is recognized. The Company expects to early adopt the standard in the third quarter of 2018 and the impact of the adoption of ASU 2018-02 is expected to be an approximately $0.9 million increase of accumulated deficit.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”). ASU 2017-12 eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires, for qualifying hedges, the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also modifies the accounting for components excluded from the assessment of hedge effectiveness, eases documentation and assessment requirements and modifies certain disclosure requirements. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted and should be applied on a modified retrospective basis. The Company is in the process of assessing the impact of the adoption of ASU 2017-12 on ~~its~~the condensed consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”). ASU 2017-09 amends the scope of modification accounting for share-based payment arrangements and provides guidance on when an entity would be required to apply modification accounting. This guidance is effective for all entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted and should be applied on a prospective basis. The Company adopted ASU 2017-09 on January, 1, 2018, on a prospective basis, and there was no impact on the condensed consolidated financial statements.

In January 2017, the FASB issued ASU ~~2017-04, “Intangibles - Goodwill and Other~~2017-01, “Business Combinations (Topic ~~350)~~805): ~~Simplifying~~Clarifying the ~~Test for Goodwill Impairment”~~Definition of a

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Business” (“ASU ~~2017-04”~~2017-01”). ASU ~~2017-04 eliminates~~2017-01 provides clarification on the ~~requirement~~definition of a business and adds guidance to ~~perform a hypothetical purchase price allocation to measure the amount~~assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) 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 2017-04assets or businesses. This guidance is effective for public entities for fiscal ~~years, and interim periods within those~~ years beginning after December 15, ~~2019 with early adoption permitted. The~~2017, including interim periods within those annual periods, and should be applied on a prospective basis. As of January 1, 2018, ASU 2017-01 became effective for the Company ~~intends to early adopt ASU 2017-04~~ for ~~its annual goodwill impairment test during~~any new acquisitions (or disposals) and there was no impact on the ~~fourth quarter of 2017.~~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”). 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 ~~does not expect the adoption of~~adopted ASU 2016-16 ~~to have~~on January 1, 2018, on a ~~material~~modified retrospective basis, and there was no impact on ~~its~~the condensed consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)” (“ASU 2016-15”). ASU 2016-15 was issued to reduce differences in practice with respect to how specific transactions are classified in the statement of cash flows. 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 and should be applied on a retrospective basis. The Company adopted ASU 2016-15 on January 1, 2018, and there was no impact on the condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), 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

~~HORIZON GLOBAL CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

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~~the condensed consolidated financial statements.

~~In July 2015,~~ The Company expects the ~~FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying~~impact to 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~~balance sheet to be significant. The Company plans to elect the practical expedients upon transition that will retain the lease classification and initial direct costs for any leases that exist prior to adoption of ~~operations.~~the standard. Horizon will not reassess whether any contracts entered into prior to adoption are leases. The Company has formed a cross-functional implementation team and is in the process of cataloging its existing lease contracts and evaluating changes to its systems to implement the new guidance.

Accounting Standards Update 2014-09

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ~~This~~ (“ASU 2014-09” or “Topic 606”). ASU 2014-09 supersedes most of the existing guidance on revenue recognition in ASC Topic 605, “Revenue Recognition” (“Topic 605”), 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~~The Company adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company does not expect the adoption of Topic 606 to have a material impact to its net income on an ongoing basis. The Company did not record a cumulative adjustment related to the adoption of ASU 2014-09, and the effects of adoption were not significant. See Note 3, “Revenues,” for further information.

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

3. Revenues

Revenue Recognition

The following tables present the Company’s net sales disaggregated by major sales channel for the three and six months ended June 30, 2018:



	Three Months Ended June 30, 2018
	Horizon Americas		Horizon Europe-Africa		Horizon Asia-Pacific		Total
	(dollars in thousands)
Net Sales
Automotive OEM	$	19,950	$	47,360	$	6,120	$	73,430
Automotive OES	1,660		12,890		16,260		30,810
Aftermarket	31,710		24,410		6,300		62,420
Retail	34,580		—		2,080		36,660
Industrial	10,300		—		3,660		13,960
E-commerce	9,570		1,270		—		10,840
Other	310		4,910		—		5,220
Total	$	108,080	$	90,840	$	34,420	$	233,340



	Six Months Ended June 30, 2018
	Horizon Americas		Horizon Europe-Africa		Horizon Asia-Pacific		Total
	(dollars in thousands)
Net Sales
Automotive OEM	$	40,000	$	94,280	$	12,510	$	146,790
Automotive OES	2,530		27,380		29,980		59,890
Aftermarket	58,230		45,200		13,040		116,470
Retail	66,730		—		5,190		71,920
Industrial	20,520		—		7,230		27,750
E-commerce	15,590		2,590		—		18,180
Other	700		8,450		—		9,150
Total	$	204,300	$	177,900	$	67,950	$	450,150

Revenue is recognized when obligations under the terms of a contract with the Company’s customers are satisfied; generally, this ~~principle, an entity identifies~~occurs with the transfer of control of its towing, trailering, cargo management and other related accessory products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring its products. Sales, value add, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. The Company’s payment terms vary by the type and location of its customers and the products offered. The term between invoicing and when payment is due is not significant.

For the majority of the Company’s sales arrangements, the Company deems control to transfer at a single point in time and recognizes revenue when it ships products from its manufacturing facilities to its customers. Once a product has shipped, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the asset. The Company considers control to transfer upon shipment because the Company has a present right to payment at that time, the customer has legal title to the asset, and the customer has significant risks and rewards of ownership of the asset.

For certain sales arrangements within the automotive OEM and automotive OES sales channels, the Company deems control to transfer over time, and recognizes revenue as products are manufactured, when the terms of the arrangement include both a right

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

to payment and contractual restrictions against the alternative use of its products. For revenue recognized over time, the Company estimates the amount of revenue earned at a given point during the production cycle based on certain costs factors such as raw materials and labor, incurred to date, plus a reasonable profit. The Company believes this method, which is the cost-to-cost input method, best estimates the revenue recognizable for these arrangement. At June 30, 2018, the aggregate amount of the transaction prices allocated to remaining performance obligations was not material, and the Company will recognize this revenue as the manufacturing of the products is completed, which is expected to occur over the next 12 months.

Provisions for customer volume rebates, product returns, discounts and allowances are variable consideration and are recorded as a reduction of revenue in the same period the related sales are recorded. Such provisions are calculated using historical averages adjusted for any expected changes due to current business conditions. Consideration given to customers for cooperative advertising is recognized as a reduction of revenue as there is no distinct good or service received in return for the advertising. The Company uses the most likely amount method to estimate variable consideration. Adjustments to estimates of variable consideration for previously recognized revenue were insignificant during the three and six months ended June 30, 2018.

Contract Balances

The timing of revenue recognition, billings and cash collections and payments results in billed accounts receivable, unbilled receivables (contract assets), and deferred revenues (contract liabilities).

Revenue recognized over time gives rise to contract assets, which represent revenue recognized but unbilled. The Company’s sales arrangements satisfied over time create contract assets when revenue is recognized as the products are manufactured, as payment is not contractually required until the products have shipped. Contract assets in these arrangements are reclassified to accounts receivable upon shipment. At June 30, 2018, total opening and closing balances of contract assets were not material.

Contract liabilities are comprised of customer payments received or due in advance of the Company’s performance. At June 30, 2018, total opening and closing balances of deferred revenue were not material. The Company recognizes deferred revenue as net sales after the Company has transferred control of the products to the customer and all revenue recognition criteria is met. For the three and six months ended June 30, 2018, the total amount of revenue recognized from revenue deferred in prior periods was not material.

Additionally, the Company monitors the aging of uncollected billings and adjusts its accounts receivable allowance on a quarterly basis, as necessary, based upon its evaluation of the probability of collection. The adjustments made by the Company due to the write-off of uncollectible amounts have been immaterial for all periods presented. At June 30, 2018 and December 31, 2017, the Company’s accounts receivable, net of reserves were $128.5 million and $91.8 million, respectively.

Practical Expedients

The Company elects the practical expedient to expense costs incurred to obtain a contract with a customer ~~identifies~~when the ~~separate performance obligations~~amortization period would have been one year or less. These costs include sales commissions as the Company has determined annual compensation is commensurate with annual sales activities.

The Company elects the practical expedient that does not require the Company to adjust consideration for the effects of a significant financing component when the period between shipment of its products and customer’s payment is one year or less.

4. Facility Closures

Solon, Ohio and Mosinee, Wisconsin

In the first quarter of 2018, the Company announced plans to close its facility in Solon, Ohio along with an engineering center in Mosinee, Wisconsin. The activities at these locations have been consolidated and moved to the headquarters of the Horizon Americas segment, located in Plymouth, Michigan. As of June 30, 2018, the Company is in the ~~contract, determines~~final stages of vacating the ~~transaction price, allocates the transaction price to the separate performance obligations~~Solon, Ohio 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 the modified retrospective approach, which would result in a cumulative-effect adjustment as of the date of adoption. While Horizon Global is continuing to assess all potential impacts of implementing this guidance, the Company does not believe this standard will have a material impact on its condensed 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.~~Mosinee, Wisconsin facilities. The Company is ~~currently evaluating its control framework~~party to lease agreements for ~~revenue recognition~~these facilities for which it has non-cancellable future rental obligations of approximately $2.4 million, for which the Company will establish accruals upon exit of the facilities in the third quarter of 2018, net of estimated recoveries. The lease agreements expire in 2019 and ~~identifying any changes that may need to be made in response~~2022, respectively.

During the second quarter of 2018, the Company finalized workforce consolidation plans related to the ~~new guidance. Disclosure requirements under~~facility closures. Severance and other employee-related costs incurred in the ~~new guidance in Topic 606 have been significantly expanded in comparison to the disclosure requirements under the current guidance. Designing~~three and ~~implementing the appropriate controls over gathering and reporting the information required under Topic 606 is currently in process.~~six months ended June 30, 2018 were approximately $3.4 million.

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

3~~. Acquisitions~~

On July 3, 2017, the Company completed the acquisition of Best Bars Limited (“Best Bars”), within the Horizon Asia-Pacific reportable segment, for total consideration of $19.8 million, subject to a net working capital adjustment. Best Bars is a provider of towing solutions and automotive accessories to OE and aftermarket customers in New Zealand. The Company believes the acquisition will expand its opportunities for revenue and margin growth, increase its market share and further develop its global OE footprint. Supplemental pro forma disclosures are not included as the amounts are deemed immaterial. Revenues and earnings of the acquiree since the acquisition date included in the Company’s condensed consolidated statements of income are immaterial.

~~The following table summarizes the fair value of consideration paid for Best Bars, and the assets acquired and liabilities assumed:~~

Acquisition Date
(dollars in thousands)
Consideration
Cash paid $ 19,800

Recognized amounts of identifiable assets acquired and liabilities assumed
Receivables, net 2,100
Inventories 2,340
Other intangibles, net 7,690
Prepaid expenses and other current assets 110
Property and equipment, net 2,250
Accounts payable and accrued liabilities 1,680
Total identifiable net assets 12,810
Goodwill 6,990
$ 19,800

45. Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 are summarized as follows:

Horizon Americas Horizon Europe-Africa Horizon
Asia-Pacific Total
(dollars in thousands)
Balance at December 31, 2016 $ 5,370
$ 114,820
$ —
$ 120,190
Goodwill from acquisitions ^(a)
—
6,990
6,990
Foreign currency translation and other 160
18,690
(120 ) 18,730
Balance at September 30, 2017 $ 5,530
$ 133,510
$ 6,870
$ 145,910



	Horizon Americas			Horizon Europe-Africa			Horizon Asia-Pacific			Total
	(dollars in thousands)
Balance at December 31, 2017
Goodwill	$	5,280		$	126,160		$	6,750		$	138,190
Accumulated impairment losses	—			—			—			—
Net beginning balance	5,280			126,160			6,750			138,190
Impairment	—			(98,020		)	—			(98,020		)
Foreign currency translation and other	(760		)	(1,180		)	(520		)	(2,460		)
Balance at June 30, 2018	$	4,520		$	26,960		$	6,230		$	37,710

~~__________________________~~During the first quarter of 2018, the Company continued to experience a decline in market capitalization. Additionally, the Europe-Africa reporting unit did not perform in-line with forecasted results driven by a shift in volume to lower margin programs as well as increased commodity costs, which negatively impacted margins. As a result, an indicator of impairment was identified during the first quarter of 2018. The Company performed an interim quantitative assessment as of March 31, 2018, utilizing a combination of the income and market approaches, which were weighted evenly. The results of the quantitative analysis performed indicated the carrying value of the reporting unit exceeded the fair value of the reporting unit by $43.4 million, and accordingly an impairment was recorded. Key assumptions used in the analysis were a discount rate of 13.5%, EBITDA margin and a terminal growth rate of 2.5%.

^(a) ~~Attributable~~Due to the ~~acquisition~~impairment indicators noted above the Company also performed an interim impairment assessment of ~~Best Bars,~~indefinite-lived intangible assets in the first quarter of 2018 in the Horizon Europe-Africa reportable segment. Based on the results of our analyses there were certain trade names where the estimated fair values approximated the carrying values. Key assumptions used in the analysis were discount rates of 13.5% to 16.0% and royalty rates ranging from 0.5% to 1.0%.

During second quarter of 2018, the Company continued to experience a decline in market capitalization. Additionally, the Europe-Africa reporting unit did not perform in-line with forecasted results driven by an unfavorable shift in volume to lower margin channels as ~~further described~~well as increased commodity costs, which negatively impacted margins. Further, the expected benefits of shifting production to lower cost manufacturing sites have not been realized. As a result, an indicator of impairment was identified during the second quarter of 2018. The Company performed an interim quantitative assessment as of June 30, 2018, utilizing a combination of the income and market approaches. The income approach was weighted 75%, while the market approach was weighted 25%. The results of the quantitative analysis performed indicated the carrying value of the reporting unit exceeded the fair value of the reporting unit by $54.6 million and, accordingly, an impairment was recorded. Key assumptions used in ~~Note 3, “Acquisitions~~the analysis were a discount rate of 14.0%, EBITDA margin and a terminal growth rate of 2.5%.”

Due to the impairment indicators noted above, the Company performed an interim impairment assessment for indefinite-lived intangible assets within the Horizon Europe-Africa reportable segment, for which the gross carrying amounts totaled approximately $12.1 million as of June 30, 2018. Based on the results of the Company’s analyses, it was determined that the carrying values of the Westfalia and Terwa trade names exceeded their fair values by $1.1 million and, accordingly, an impairment was recorded. Key assumptions used in the analysis were discount rates of 15.0% and royalty rates ranging from 0.5% to 1.0%.

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The gross carrying amounts and accumulated amortization of the Company’s other intangibles as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 are summarized below. The Company amortizes these assets over periods ranging from three to 25 years.


	September 30, 2017					December 31, 2016					June 30, 2018					December 31, 2017
Intangible Category by Useful Life	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
	(dollars in thousands)										(dollars in thousands)
Finite-lived intangible assets:
Customer relationships, 5 – 12 years	$	70,320	$	(31,610	)	$	66,000	$	(28,440	)
Customer relationships, 15 – 25 years	111,680		(88,650		)	104,690		(84,120		)
Total customer relationships	182,000		(120,260		)	170,690		(112,560		)
Customer relationships, 5 – 25 years											$	178,860	$	(124,770	)	$	180,850	$	(121,750	)
Technology and other, 3 – 15 years	19,520		(15,290		)	18,410		(14,560		)	20,560		(15,600		)	19,950		(15,260		)
Trademark/Trade names, <1 - 8 years	730		(170		)	150		(150		)
Trademark/Trade names, 1 - 8 years											730		(220		)	730		(190		)
Total finite-lived intangible assets	202,250		(135,720		)	189,250		(127,270		)	200,150		(140,590		)	201,530		(137,200		)
Trademark/Trade names, indefinite-lived	26,250		—			24,740		—			24,210		—			25,900		—
Total other intangible assets	$	228,500	$	(135,720	)	$	213,990	$	(127,270	)	$	224,360	$	(140,590	)	$	227,430	$	(137,200	)

Amortization expense related to intangible assets as included in the accompanying condensed consolidated statements of income (loss) is summarized as follows:


	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
	(dollars in thousands)								(dollars in thousands)
Technology and other, included in cost of sales	$	210	$	30	$	570	$	100	$	290	$	140	$	560	$	360
Customer relationships & trademark/trade names, included in selling, general and administrative expenses	2,490		1,810		7,090		5,380
Customer relationships & Trademark/Trade names, included in selling, general and administrative expenses									1,620		2,250		3,580		4,600
Total amortization expense	$	2,700	$	1,840	$	7,660	$	5,480	$	1,910	$	2,390	$	4,140	$	4,960

5.6. Inventories

Inventories consist of the following components:


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
	(dollars in thousands)				(dollars in thousands)
Finished goods	$	94,200	$	89,410	$	101,190	$	105,070
Work in process	20,040		16,270		18,070		16,590
Raw materials	48,420		40,340		48,270		49,840
Total inventories	$	162,660	$	146,020	$	167,530	$	171,500

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

6.7. Property and Equipment, Net

Property and equipment consists of the following components:


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
	(dollars in thousands)				(dollars in thousands)
Land and land improvements	$	450	$	520	$	470	$	480
Buildings	24,580		20,120		23,730		23,370
Machinery and equipment	161,330		138,470		162,820		162,830
	186,360		159,110		187,020		186,680
Less: Accumulated depreciation	75,530		65,350		78,590		73,660
Property and equipment, net	$	110,830	$	93,760	$	108,430	$	113,020

As discussed in See Note5, “Goodwill and other intangible assets,” the Company identified indicators of impairment in its Horizon Europe-Africa reporting unit. As a result, the Company performed an impairment test for long-lived assets in accordance with ASC 360, “Property, Plant and Equipment” as of June 30, 2018. The test did not result in an impairment of long-lived assets. There were no indicators of impairment identified in the Horizon Americas or Horizon Asia-Pacific reporting units.

Depreciation expense included in the accompanying condensed consolidated statements of income (loss) is as follows:


	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
	(dollars in thousands)								(dollars in thousands)
Depreciation expense, included in cost of sales	$	3,440	$	2,060	$	9,330	$	6,310	$	3,810	$	2,980	$	7,600	$	5,890
Depreciation expense, included in selling, general and administrative expense	330		440		950		1,180		300		300		640		620
Total depreciation expense	$	3,770	$	2,500	$	10,280	$	7,490	$	4,110	$	3,280	$	8,240	$	6,510

78. Long-term Debt

The Company’s long-term debt consists of the following:


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
	(dollars in thousands)				(dollars in thousands)
ABL Facility	$	20,000	$	—	$	62,600	$	10,000
Term B Loan	151,560		337,000		145,730		149,620
Convertible Notes	125,000		—		125,000		125,000
Bank facilities, capital leases and other long-term debt	19,190		21,660		18,810		25,780
	315,750		358,660		352,140		310,400
Less:
Unamortized debt issuance costs and original issuance discount on Term B Loan	5,330		8,720		4,220		4,940
Unamortized debt issuance costs and discount on the Convertible Notes	31,200		—		27,030		29,870
Current maturities, long-term debt	9,510		22,900		10,170		16,710
Long-term debt	$	269,710	$	327,040	$	310,720	$	258,880

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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 the Company’s common stock, based on an initial conversion price of $24.98 per share. The Convertible Notes will mature on July 1, 2022 unless earlier converted.

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 Company’s 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 the close of business on the second scheduled trading day immediately preceding the maturity date. During the ~~third~~second quarter of ~~2017,~~2018, no conditions allowing holders of the Convertible Notes to convert have been met. Therefore, the Convertible Notes ~~are~~were not convertible during the ~~fourth~~second quarter of ~~2017~~2018 and are classified as long-term debt. Should conditions allowing holders of the Convertible Notes to convert be met in ~~the fourth quarter of 2017 or~~ a future quarter, the Convertible Notes will be convertible at their holders’ option during the immediately following quarter. As of ~~September~~June 30, ~~2017,~~2018, 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”~~ASC 470-20”) ~~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~~$3.9 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~~$2.9 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 component. The carrying value of the liability component at ~~September~~June 30, 2018 and December 31, 2017, was ~~$93.8~~$98.0 million and $95.1 million, respectively, including total unamortized debt discount and debt issuance costs of ~~$31.2 million.~~$27.0 million and $29.9 million, respectively. 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~~$20.0 million at ~~September~~June 30, 2018 and December 31, 2017, respectively, 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 (loss) are as follows:


	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
	(dollars in thousands)								(dollars in thousands)
Contractual interest coupon on convertible debt	$	880	$	—	$	2,310	$	—	$	870	$	870	$	1,730	$	1,430
Amortization of debt issuance costs	$	130	$	—	$	350	$	—	$	130	$	130	$	260	$	220
Amortization of "equity discount" related to debt	$	1,190	$	—	$	3,180	$	—	$	1,290	$	1,190	$	2,580	$	1,990

The estimated fair value of the Convertible Notes based on a market approach as of June 30, 2018 was approximately $87.4 million,

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

which represents a Level 2 valuation. The estimated fair value was determined based on the estimated or actual bids and offers of the Convertible Notes in an over-the-counter market on the last business day of the period.

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

~~HORIZON GLOBAL CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

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.~~million, before the allocation of $0.6 million of issuance costs. 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~~that certain Amended and ~~restated loan agreement~~Restated Loan Agreement among the Company, Horizon Global Americas Inc. (f/k/a Cequent Performance Products, Inc. ~~(“Cequent Performance”)~~, successor by merger to Cequent Consumer Products, Inc.) (“~~Cequent Consumer”~~HGA”), 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~~establishes (i) a U.S. sub-facility, ~~from~~in 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)~~(ii) a Canadian sub-facility, in an aggregate principal amount of up to $2.0 million (subject to availability under a Canadian-specific borrowing base) (the “Canadian Facility”), and ~~(ii)~~(iii) a U.K. sub-facility in an aggregate principal amount of up to $3.0 million (subject to availability under a U.K.-specific borrowing base) (the “U.K. Facility”). The ABL Facility also includes a $20.0 million U.S. 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) with respect to the U.S. Facility and the U.K. Facility, (a) the Base Rate (as defined per the ~~credit agreement,~~ABL Loan Agreement, the “Base Rate”) plus the Applicable Margin (as defined per the ~~credit agreement~~ABL Loan Agreement “Applicable Margin”), or ~~(ii)~~(b) the London Interbank Offered Rate (“LIBOR”) plus the Applicable ~~Margin.~~Margin, and (ii) with respect to the Canadian Facility, (a) the Base Rate plus the Applicable Margin, or (b) the Canadian Prime Rate (as defined per the ABL Loan Agreement).

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 (a) LIBOR ~~revolving loans, as~~Revolving Loans (as defined per the ~~credit agreement,~~ ABL Loan Agreement), with respect to the U.S. Facility and the U.K. Facility or (b) Canadian BA Rate Loans (as defined per the ABL Loan Agreement), with respect to the Canadian Facility,

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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~~HGA 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~~HGA 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 ~~September~~June 30, ~~2017,~~2018, 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

~~HORIZON GLOBAL CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

recognized ~~approximately~~ $0.1 million and ~~$0.4~~$0.2 million of amortization of debt issuance costs for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, and ~~approximately~~ $0.1 million and ~~$0.4~~$0.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, respectively, which are included in the accompanying condensed consolidated statements of ~~income.~~income (loss). There were ~~$1.4~~$1.1 million and ~~$1.8~~$1.3 million of unamortized debt issuance costs included in other assets in the accompanying condensed consolidated balance sheets as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

~~As of September 30, 2017, there was $20.0~~There were $62.6 million and $10.0 million outstanding under the ABL Facility as of June 30, 2018 and December 31, 2017, respectively, with a weighted average interest rate of ~~3.2%. As of December 31, 2016, there were no amounts outstanding under the ABL Facility.~~3.9% and 3.6%, respectively. Total letters of credit issued were approximately $3.5 million and $6.3 million ~~and $7.0 million~~ at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. The Company had ~~$65.0~~$26.8 million and ~~$68.7~~$58.5 million in availability under the ABL Facility as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

Term Loan

On June 30, 2015, the Company entered into a ~~term loan agreement (“Original Term B Loan”~~Credit Agreement among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A. (the “Term Loan Agreement”) under which the Company borrowed an aggregate of $200.0 million (“Original Term B Loan”), which matures on June 30, 2021. On September 19, 2016, the Company entered into the First Amendment to the ~~Original Term B Loan~~Credit Agreement (“Term Loan Amendment”), which amended the ~~original~~Original Term B Loan to provide for incremental commitments in an aggregate principal amount of $152.0 million (“2016 Incremental Term Loans”) that were extended to the Company on October 3, 2016. The Original Term B Loan and 2016 Incremental Term Loans are collectively referred to as “Term B Loan”. On March 31, 2017, the Company entered into the ~~Third~~2017 Replacement Term Loan Agreement Amendment (Third Amendment to ~~the Term B Loan~~Credit Agreement) (the ~~“Replacement~~“2017 Replacement Term Loan Amendment”); the Term Loan Agreement, as amended by the Term Loan Amendment, the 2017 Replacement Term Loan Amendment and as otherwise amended prior to July 1, 2018, the “Amended Term Loan Agreement”), which ~~amended~~replaced the Term B Loan to provide for a new term loan commitment (the ~~“Replacement~~“2017 Replacement Term Loan”). The proceeds from the 2017 Replacement Term Loan were used to repay in full the outstanding principal amount of the Term B Loan. As a result of the 2017 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~~

The Amended 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~~Agreement 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 $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 2017 Replacement Term B Loan ~~bear~~bore 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~~were $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 September 30, 2017, the Company was in compliance with its financial covenants 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 ~~11,~~12, “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

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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.~~income (loss). The remaining unamortized debt issuance costs and original issuance discount, including $2.4 million additional transactions fees incurred in connection to the 2017 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 ~~$1.2~~$0.8 million of amortization of debt issuance cost and original issue discount for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, and ~~$0.3~~$0.4 million and ~~$1.0~~$0.8 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, respectively, which is

~~HORIZON GLOBAL CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

included in the accompanying condensed consolidated statements of ~~income.~~income (loss). The Company had an aggregate principal amount outstanding of ~~$151.6~~$145.7 million and ~~$337.0~~$149.6 million as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, under the Amended Term B Loan Agreement bearing interest at ~~5.7%~~6.6% and ~~7.0%~~6.1%, respectively. The Company had ~~$5.3~~$4.2 million and ~~$8.7~~$4.9 million as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, 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 ~~101.4%~~98.7% and ~~101.6%~~101.4% of par value as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. The valuation of the Term B Loan was determined based on Level 2 inputs under the fair value hierarchy.

~~Bank facilities~~On February 16, 2018, the Company entered into an amendment to the 2017 Replacement Term Loan (the “February 2018 Replacement Term Loan Amendment”), which would have replaced the 2017 Replacement Term Loan to provide for a new term loan commitment in an original aggregate principal amount of $385.0 million (the “2018 Replacement Term Loan”). The proceeds from the 2018 Replacement Term Loan were to be used to (i) repay in full the outstanding principal amount of the existing term loans, (ii) to consummate the acquisition of Brink International B.V. and its subsidiaries (collectively, the “Brink Group”) and pay a portion of the acquisition consideration thereof and the fees and expenses incurred in connection therewith, and (iii) for general corporate purposes. On June 14, 2018, the Company and H2 Equity Partners mutually agreed to terminate the Brink Group acquisition agreement. As part of the termination agreement, the Company agreed to pay a break fee of approximately $5.5 million to H2 Equity Partners, which is included in selling, general and administrative expenses in the condensed consolidated statements of income (loss) for the three and six months ended June 30, 2018. In addition, the Company incurred $3.6 million and $4.9 million of transaction fees during the three and six months ended June 30, 2018, respectively, which are included in selling, general and administrative expenses in the condensed consolidated statements of income (loss). During the three and six months ended June 30, 2018, the Company incurred $4.5 million and $5.1 million, respectively, of financing costs in connection with the pursuit of the Brink Group acquisition which are included in other expense, net in the condensed consolidated statements of income (loss). Due to the termination of the Brink Group acquisition, the February 2018 Replacement Term Loan Amendment will not become effective.

~~Our Australian subsidiaries~~On July 31, 2018, the Company entered into the Fourth Amendment to Credit Agreement (the “Fourth Amendment”; the Amended Term Loan Agreement, as amended by the Fourth Amendment, the “2018 Term Loan Agreement”). The Fourth Amendment provided for additional borrowings of $50.0 million (the “2018 Incremental Term Loan”; the 2017 Replacement Term Loan as increased by the 2018 Incremental Term Loan, the “2018 Term B Loan”) that were ~~party~~used to ~~a revolving debt facility~~pay outstanding balances under the ABL Loan Agreement, pay fees and expenses in connection with the amendment and for general corporate purposes. Borrowings under the 2018 Term B Loan bear interest, at the Company’s election, at either (i) the Base Rate plus 5.0% per annum, or (ii) LIBOR, with a ~~borrowing capacity~~1.0% floor, plus 6.0% per annum. Principal payments required under the 2018 Term B Loan are $2.6 million due each calendar quarter beginning September 2018. Under the 2018 Term Loan Agreement, commencing with the fiscal year ended December 31, 2017, and for each fiscal year thereafter, the Company is required to make prepayments of ~~approximately $11.7 million, which would mature on November 30, 2017, that was~~outstanding amounts under the Term B Loan in an amount up to 75.0% of the Company’s excess cash flow for such fiscal year, as defined in the 2018 Term B Loan, subject to ~~interest at a bank-specified rate plus 1.9%~~adjustments based on the Company’s leverage ratio and ~~was~~optional prepayments of term loans and certain other indebtedness.

All of the indebtedness under the 2018 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 ~~subsidiary. No amounts were outstanding~~Company and such guarantors. The 2018 Term Loan Agreement contains customary negative covenants, and also contains a financial maintenance covenant which requires the Company to maintain a net leverage ratio, as defined in the agreement, not exceeding 7.00 to 1.00 on the last day of each fiscal quarter commencing with the fiscal quarter ending on June 30, 2018 and ending, and including, the fiscal quarter ending on December 31, ~~2016~~2018; 6.50 to 1.00 on the last day of the fiscal quarter ending March 31, 2019; 5.00 to 1.00 on the last day of the fiscal quarter ending June 30, 2019; 4.75 to 1.00 on the last day of the fiscal quarter ending September 30, 2019; and on the last day of each fiscal quarter thereafter, 4.50 to 1.00. At June 30, 2018, the Company was in compliance with its financial covenants under ~~this facility.~~the Term B Loan.

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Bank facilities

On July 3, 2017, ~~our~~the Company’s Australian subsidiaries entered into ~~a new~~an agreement (collectively, the “Australian Loans”) to provide for revolving borrowings with an aggregate principal amount of ~~$32.0 million as of September 30, 2017.~~approximately $30.3 million. The Australian Loans include two sub-facilities: (i) Facility A, with a borrowing capacity of ~~$20.3~~$19.2 million that matures on July 3, 2020 and (ii) Facility B, with a borrowing capacity of ~~$11.7~~$11.1 million that matures on July 3, 2018. ~~No amounts~~There were $1.1 million and $6.6 million outstanding ~~as of September 30, 2017~~ under the Australian ~~Loans.~~Loans as of June 30, 2018 and December 31, 2017, respectively.

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.

The Australian Loans contain financial covenants, which require ~~our~~the Company’s 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%. At June 30, 2018, the Company was in compliance with its financial covenants under the Australian Loans.

89. Derivative Instruments

Foreign Currency Exchange Rate Risk

As of ~~September~~June 30, ~~2017~~2018, the Company was party to forward contracts to hedge changes in foreign currency exchange rates with notional amounts of approximately ~~$17.2~~$26.1 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 June ~~2018.~~2019. At inception, the Company designated the foreign currency forward contracts as cash flow hedges. Upon the performance of contract manufacturing or purchase of certain inventories, the Company de-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 ~~September~~June 30, ~~2017,~~2018, the notional amount of the cross currency swap was approximately ~~$117.0~~$112.3 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 (loss) to earnings to offset the re-measurement gain or loss on the non-U.S. denominated intercompany loan.

~~Additionally, during the third quarter of~~On August 16, 2017, the Company’s Australian subsidiary entered into a cross currency swap arrangement to hedge changes in foreign currency exchange rates. As of ~~September~~June 30, ~~2017,~~2018, the notional amount of the cross currency swap was approximately ~~$6.6~~$4.5 million. The Australian subsidiary uses the cross currency swap to mitigate the risk associated with fluctuations in currency rates related to a non-functional currency intercompany loan of NZ$10.0 million. The floating-to-floating cross currency swap hedges currency exposure between the New Zealand dollar and the Australian dollar and matures on June 30, 2020. The Australian subsidiary makes quarterly principal payments of NZ$0.8 million, plus interest at the 3-month Bank Bill Benchmark Rate ("BKBM") in New Zealand plus a margin of ~~.31%~~0.31% per annum, in exchange for A$0.8 million, plus interest at the ~~3-month~~three-month BBSY in Australia per annum. At inception, the cross currency swap was not designated as a hedging instrument.

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Financial Statement Presentation

As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017, the fair value carrying amount of the Company’s derivative instruments were recorded as follows:


		Asset / (Liability) Derivatives							Asset / (Liability) Derivatives
	Balance Sheet Caption	September 30, 2017			December 31, 2016			Balance Sheet Caption	June 30, 2018			December 31, 2017
		(dollars in thousands)							(dollars in thousands)
Derivatives designated as hedging instruments
Foreign currency forward contracts	Prepaid expenses and other current assets	$	270		$	670		Prepaid expenses and other current assets	$	540		$	—
Foreign currency forward contracts	Accrued liabilities	(100		)	(760		)	Accrued liabilities	(40		)	(670		)
Cross currency swap	Other assets	—			5,720			Accrued liabilities	(2,840		)	—
Cross currency swap	Other long-term liabilities	(7,880		)	—			Other long-term liabilities	—			(7,830		)
Total derivatives designated as hedging instruments		(7,710		)	5,630				(2,340		)	(8,500		)
Derivatives not designated as hedging instruments
Foreign currency forward contracts	Prepaid expenses and other current assets	270			—			Prepaid expenses and other current assets	120			110
Foreign currency forward contracts	Accrued liabilities	(40		)	(130		)	Accrued liabilities	(10		)	(90		)
Cross currency swap	Other assets	20			—			Other assets	40			90
Total derivatives de-designated as hedging instruments		250			(130		)		150			110
Total derivatives		$	(7,460	)	$	5,500			$	(2,190	)	$	(8,390	)

The following tables summarize the gain or loss recognized in accumulated other comprehensive income (loss) (“AOCI”), as of June 30, 2018 and December 31, 2017 and the amounts reclassified from AOCI into earnings and the amounts recognized directly into earnings ~~as of and~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016:~~2017:


	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion, net of tax)							Amount of Gain (Loss) Reclassified from AOCI into Earnings												Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion, net of tax)						Amount of Gain (Loss) Reclassified from AOCI into Earnings
								Three months ended September 30,						Nine months ended September 30,												Three months ended June 30,					Six months ended June 30,
	As of September 30, 2017			As of December 31, 2016			Location of Gain (Loss) Reclassified from AOCI into Earnings (Effective Portion)	2017			2016			2017			2016			As of June 30, 2018		As of December 31, 2017			Location of Gain (Loss) Reclassified from AOCI into Earnings (Effective Portion)	2018		2017			2018		2017
	(dollars in thousands)							(dollars in thousands)												(dollars in thousands)						(dollars in thousands)
Derivatives instruments
Foreign currency forward contracts	$	190		$	(320	)	Cost of sales	$	620		$	(350	)	$	880		$	(1,120	)	$	440	$	(660	)	Cost of sales	$	80	$	400		$	210	$	260
Cross currency swap	$	(950	)	$	(610	)	Other expense, net	$	(4,100	)	$	—		$	(13,840	)	$	—		$	1,490	$	270		Other expense, net	$	6,290	$	(8,270	)	$	3,220	$	(9,750	)

Over the next 12 months, the Company expects to reclassify approximately ~~$0.2~~$0.6 million of pre-tax deferred gains, related to the foreign currency forward contracts, from AOCI to cost of sales as ~~the~~contract manufacturing and inventory purchases are settled. Over the next 12 months, the Company expects to reclassify approximately ~~$1.5~~$2.0 million of pre-tax deferred ~~losses,~~gains, 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.

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.~~income (loss). There were $0.1 million of losses on de-designated derivatives for the three months ended ~~September~~June 30, ~~2017~~2018 and there were no ~~gain~~gains or ~~loss~~losses on de-designated derivatives for the ~~nine~~six months ended ~~September~~June 30, ~~2017. The~~2018. 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 ~~amounted to $0.1 million and $0.3 million~~ for the ~~three and nine~~six months ended ~~September~~June 30, ~~2016, respectively.~~2017. The gain or loss resulting from the change in fair value on the floating-to-floating cross currency swap is recorded within other expense, net on the Company’s condensed consolidated statements of ~~income. The gain or loss~~income (loss). There were $0.1 million of gains and $0.1 million of losses on this cross currency swap ~~was not material~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively.

During May 2018, the Company entered into foreign currency option contracts known as zero-cost collars with an aggregate notional amount of €63.4 million to hedge changes in foreign currency related to the cash portion of the purchase price of the pending acquisition of the Brink Group; the acquisition was later terminated as described in Note 8 “Long-term Debt.” During June 2018, these zero-cost collar arrangements matured, resulting in a loss of $1.2 million which is included within other expense, net in the Company’s condensed consolidated statements of income (loss) for the three and six months ended June 30, 2018.

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 Company’s derivatives are recorded at fair value in its condensed consolidated balance sheets and are valued using pricing models that are primarily based on market observable external inputs, including spot and forward currency exchange rates, benchmark interest rates, and discount rates consistent with the ~~fair value~~instrument’s tenor, and consider the impact of the Company’s ~~foreign currency forward contracts use observable inputs such as forward currency exchange rates.~~own credit risk, if any. Changes in counterparty credit risk are also considered in the valuation of derivative financial instruments. 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 ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 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)		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)											(dollars in thousands)
September 30, 2017
June 30, 2018
Foreign currency forward contracts	Recurring	$	400		$	—	$	400		$	—	Recurring	$	610		$	—	$	610		$	—
Cross currency swaps	Recurring	$	(7,860	)	$	—	$	(7,860	)	$	—	Recurring	$	(2,800	)	$	—	$	(2,800	)	$	—
December 31, 2016
December 31, 2017
Foreign currency forward contracts	Recurring	$	(220	)	$	—	$	(220	)	$	—	Recurring	$	(650	)	$	—	$	(650	)	$	—
Cross currency swap	Recurring	$	5,720		$	—	$	5,720		$	—
Cross currency swaps												Recurring	$	(7,740	)	$	—	$	(7,740	)	$	—

910. Segment Information

~~Horizon~~The Company 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, theThe Company reports the results of its business in three reportable segments: Horizon Americas, Horizon Europe‑Africa, and Horizon Asia‑Pacific. ~~The~~Horizon Americas is comprised of 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~~American and South American operations. 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’swhile 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.~~operations. 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,~~OEMs, OESs, aftermarket and retail customers in the agricultural, automotive, construction, industrial, marine, military, recreational vehicle, trailer and utility end markets. Products include brake controllers, cargo management, heavy-duty towing products, jacks and ~~couplers, protection/~~

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

couplers, protection/securing systems, trailer structural and electrical components, tow bars, vehicle roof racks, vehicle trailer hitches and additional accessories.

Horizon Europe‑Africa - With a product offering similar to Horizon Americas, Horizon Europe‑Africa focuses its sales and manufacturing efforts in 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 September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
	(dollars in thousands)												(dollars in thousands)
Net Sales
Horizon Americas	$	115,460		$	110,730		$	351,400		$	350,170		$	108,080		$	138,110		$	204,300		$	235,940
Horizon Europe-Africa	87,950			13,050			253,070			39,600			90,840			86,580			177,900			165,120
Horizon Asia-Pacific	36,710			27,940			92,520			75,820			34,420			28,900			67,950			55,810
Total	$	240,120		$	151,720		$	696,990		$	465,590		$	233,340		$	253,590		$	450,150		$	456,870
Operating Profit (Loss)
Horizon Americas	$	10,930		$	12,910		$	38,840		$	35,630		$	2,570		$	22,750		$	(2,540	)	$	27,910
Horizon Europe-Africa	2,680			210			5,950			600			(55,690		)	3,610			(100,780		)	3,270
Horizon Asia-Pacific	5,880			3,750			13,240			8,830			4,670			4,290			9,060			7,360
Corporate	(6,200		)	(10,240		)	(21,160		)	(19,500		)	(15,690		)	(6,410		)	(23,150		)	(14,960		)
Total	$	13,290		$	6,630		$	36,870		$	25,560		$	(64,140	)	$	24,240		$	(117,410	)	$	23,580

~~10.~~11. 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 stock units, cash incentive awards, and certain other awards based on or related to ~~our~~the Company’s common stock to Horizon employees and non-employee directors. No more than ~~2.0~~4.4 million Horizon common shares may be delivered under the Horizon 2015 Plan.

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~~2017 to ~~September~~June 30, ~~2017:~~2018:


	Number of Stock Options		Weighted Average Exercise Price		Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value		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
Outstanding at December 31, 2017								338,349		$	10.38
Granted	—		—					—		—
Exercised	(3,638	)	10.40					—		—
Canceled, forfeited	—		—					(58,515	)	10.32
Expired	—		—					—		—
Outstanding at September 30, 2017	343,947		$	10.37	8.1	$	2,499,061
Outstanding at June 30, 2018								279,834		$	10.39	7.3	$	—

As of ~~September~~June 30, ~~2017, there was $0.2 million in~~2018, the unrecognized compensation cost related to stock options ~~that~~ is ~~expected~~immaterial. For the three and six months ended June 30, 2018, the stock-based compensation expense recognized by the Company related to ~~be recognized over a weighted-average period of 0.5 years. The~~stock options was immaterial. For the three and six months ended June 30, 2017, the Company recognized approximately $0.1 million and ~~$0.3~~$0.2 million of stock-based compensation expense related to stock options, ~~during~~respectively. There was no aggregate intrinsic value of the ~~three and nine months ended September~~outstanding options at June 30, ~~2017, respectively, and approximately $0.2 million and $0.6 million during the three and nine months ended September 30, 2016, respectively.~~2018. Stock-based compensation expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of ~~income.~~income (loss).

Restricted Shares

In the first ~~nine~~six months of 2018, the Company granted an aggregate of 452,291 restricted stock units and performance stock units to certain key employees and non-employee directors. The total grants consisted of: (i) 5,680 time-based restricted stock units that vest on July 1, 2018; (ii) 43,799 time-based restricted stock units that vest ratably on (1) March 1, 2019, (2) March 1, 2020 and (3) March 1, 2021; (iii) 101,204 time-based restricted stock units that vest ratably on (1) March 1, 2019, (2) March 1, 2020, (3) March 1, 2021 and (4) March 1, 2022; (iv) 145,003 market-based performance stock units that vest on March 1, 2021 (the “2018 PSUs”), (v) 43,416 time-based restricted stock units that vest on March 1, 2021, (vi) 17,575 time-based restricted stock units that vest on May 8, 2019, (vii) 84,210 time-based restricted stock units that vest on May 15, 2018 and (viii) 11,404 time-based restricted stock units that vest on May 15, 2020.

During 2017, the Company granted an aggregate of 185,423 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; (iii) 72,865 market-based performance stock units that vest on March 1, ~~2020;~~2020 (the “2017 PSUs”); (iv) 33,426 time-based restricted stock units that vest on July 1, 2018, and (v) 6,267 time-based restricted stock units that vest on July 1, 2019.

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,~~group. For the 2018 PSUs, TSR is measured over a period beginning January 1, 2018 and ending December 31, 2020. For the 2017 PSUs, TSR is 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 2.34% and 1.52% for the 2018 PSUs and 2017 PSUs, respectively, and annualized volatility of 37.4% and 38.5%. for the 2018 PSUs and 2017 PSUs, respectively. 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 were $7.08 and ~~was $18.41.~~$18.41 for the 2018 PSUs and 2017 PSUs, respectively.

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 ~~September~~June 30, ~~2017~~2018 were as follows:


	Number of Restricted Shares		Weighted Average Grant Date Fair Value		Number of Restricted Shares		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2016	557,563		$	11.89
Outstanding at December 31, 2017					582,611		$	13.51
Granted	185,423		17.49		452,291		7.48
Vested	(153,086	)	12.52		(109,609	)	12.67
Canceled, forfeited	—		—		(189,926	)	11.51
Outstanding at September 30, 2017	589,900		$	13.50
Outstanding at June 30, 2018					735,367		$	10.44

As of ~~September~~June 30, ~~2017~~2018, there was ~~$4.0~~$3.1 million in unrecognized compensation costs related to unvested restricted shares that is expected to be recognized over a weighted-average period of ~~0.9 year.~~2.3 years.

The Company recognized approximately ~~$0.9~~$0.5 million and ~~$2.5~~$1.2 million of stock-based compensation expense related to restricted shares during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, and approximately $0.8 million and ~~$2.2~~$1.6 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, respectively. Stock-based compensation expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of ~~income.~~income (loss).

~~11.~~12. 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~~

Basic earnings (loss) per share is computed using net income (loss) attributable to Horizon Global and the number of weighted average shares outstanding. Diluted earnings (loss) per share is computed using net income (loss) attributable to Horizon Global and the number of weighted average shares outstanding, adjusted to give effect to the assumed exercise of outstanding stock options and warrants, vesting of restricted shares outstanding, and conversion of the Convertible Notes. Due to net losses for the three and six months ended June 30, 2018, the effect of potentially dilutive securities had an anti-dilutive effect and therefore were excluded from the computation of diluted loss per share.

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 (loss) per share attributable to Horizon Global for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016:~~

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
(dollars in thousands, except for per share amounts)
Numerator:
Net income attributable to Horizon Global $ 6,890
$ 370
$ 17,290
$ 9,890
Denominator:
Weighted average shares outstanding, basic 24,948,410
18,174,509
24,728,643
18,144,998
Dilutive effect of stock-based awards 430,842
344,568
426,157
188,228
Weighted average shares outstanding, diluted 25,379,252
18,519,077
25,154,800
18,333,226

Basic earnings per share attributable to Horizon Global $ 0.28
$ 0.02
$ 0.70
$ 0.55
Diluted earnings per share attributable to Horizon Global $ 0.27
$ 0.02
$ 0.69
$ 0.54
2017:

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)



	Three months ended June 30,					Six months ended June 30,
	2018			2017		2018			2017
	(dollars in thousands, except for per share amounts)
Numerator:
Net income (loss) attributable to Horizon Global	$	(66,930	)	$	20,260	$	(124,440	)	$	10,400
Denominator:
Weighted average shares outstanding, basic	25,017,725			25,385,395		24,990,573			24,616,939
Dilutive effect of stock-based awards	—			357,682		—			427,714
Weighted average shares outstanding, diluted	25,017,725			25,743,077		24,990,573			25,044,653

Basic earnings (loss) per share attributable to Horizon Global	$	(2.68	)	$	0.80	$	(4.98	)	$	0.42
Diluted earnings (loss) per share attributable to Horizon Global	$	(2.68	)	$	0.79	$	(4.98	)	$	0.42

The effect of certain common stock equivalents were excluded from the computation of weighted average diluted shares outstanding for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, 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 September 30,		Nine months ended September 30,		Three months ended June 30,		Six months ended June 30,
	2017	2016	2017	2016	2018	2017	2018	2017
Number of options	—	—	—	268,331	308,348	—	321,341	—
Exercise price of options	—	—	—	$10.08 - $11.02	$9.20 - $11.29	—	$9.20 - $11.29	—
Restricted stock units	—	—	57,118	53,546	835,560	145,730	737,865	98,227
Convertible Notes	5,005,000	—	4,418,333	—	5,005,000	5,005,000	5,005,000	4,120,138
Warrants	5,005,000	—	4,418,333	—	5,005,000	5,005,000	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 7,8, “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 (loss) per share.

~~12.~~13. 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 ~~September~~June 30, ~~2017~~2018 or December 31, ~~2016.~~2017.

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 ~~September~~June 30, ~~2017,~~2018, there were ~~24,936,110~~25,710,158 shares of common stock issued and ~~outstanding, net~~25,023,652 shares of ~~686,506 in treasury shares.~~common stock outstanding. At December 31, ~~2016,~~2017, there were ~~20,899,959~~25,625,571 shares of common stock issued and 24,939,065 shares of common stock outstanding.

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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 B Loan ~~Amendment~~ place certain limitations on the Company’s ability to repurchase its common stock. As of ~~September~~June 30, ~~2017,~~2018, cumulative shares purchased totaled 686,506 at an average purchase price per share of $14.55, excluding commissions. The repurchased shares are presented as treasury stock, at cost, on the condensed consolidated balance sheets.

~~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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 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)
(7,950 ) 15,500
7,550
Less: Net realized losses reclassified to net income ^(b)
(8,120 ) —
(8,120 )
Net current-period change 170
15,500
15,670
Balance at September 30, 2017 $ (760 ) $ 8,090
$ 7,330



	Derivative Instruments			Foreign Currency Translation			Total
	(dollars in thousands)
Balance at December 31, 2017	$	(390	)	$	10,400		$	10,010
Net unrealized gains (losses) arising during the period ^(a)	5,060			(3,650		)	1,410
Less: Net realized losses reclassified to net loss ^(b)	2,740			—			2,740
Net current-period change	2,320			(3,650		)	(1,330		)
Balance at June 30, 2018	$	1,930		$	6,750		$	8,680

__________________________

^(a) Derivative instruments, net of income tax ~~benefit~~expense of ~~$5.2~~$1.0 million. See Note 8,9, “Derivative Instruments,” for further details.

^(b)Derivative instruments, net of income tax expense of $0.7 million. See Note 9, “Derivative Instruments,” for further details.

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 loss ^(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 9, “Derivative Instruments,” for further details.

^(b)Derivative instruments, net of income tax benefit of ~~$4.8~~$3.4 million. See Note ~~8, “Derivative Instruments,” for further details.~~

~~Changes in AOCI by component, net of tax, for the nine months ended September 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 ^(a)
(660 ) 1,130
470
Less: Net realized losses reclassified to net income ^(b)
(1,030 ) —
(1,030 )
Net current-period change 370
1,130
1,500
Balance at September 30, 2016 $ (340 ) $ 4,310
$ 3,970

~~__________________________~~

^(a)~~Derivative instruments, net of income tax benefit of $0.1 million. See Note 8, “Derivative Instruments,” for further details.~~

^(b)~~Derivative instruments, net of income tax benefit of $0.1 million. See Note 8,~~9, “Derivative Instruments,” for further details.

~~13.~~14. 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 overall pre-tax ~~losses in the U.S.~~losses. 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 ~~September~~June 30, ~~2017, we believe~~2018, the Company believes that it is more likely than not that the ~~U.S.~~recorded deferred tax assets will be realized. If the ~~U.S. business~~

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Company continues to experience losses through ~~2017,~~2018, 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 ~~(1.9)%~~12.7% and ~~(25.7)%~~9.0% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, the effective income tax rates were ~~75.8%~~(9.0)% and ~~8.3%~~(49.1)%, respectively. The ~~lower~~higher effective income tax rate in ~~the three months ended September 30, 2017~~2018 is driven by a ~~higher portion of income earned~~decrease in ~~jurisdictions with lower statutory rates and the recognition of additional tax credits recognized in the U.S. The lower effective income tax rate~~

~~HORIZON GLOBAL CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

~~in the nine months ended September 30, 2017 is driven by the recognition of the income~~ tax benefits ~~associated with stock awards issued,~~related to the release of certain unrecognized tax positions and the impairment of goodwill related to the Horizon Europe-Africa segment which does not result in the recognition of ~~additional~~a tax ~~credits in~~benefit.

Other Matters

The 2017 Tax Act was enacted on December 22, 2017. The 2017 Tax Act reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. The Company is applying the guidance in SEC Staff Accounting Bulletin No. 118 when accounting for the enactment-date effects of the 2017 Tax Act.

~~During the nine months ended September~~At June 30, ~~2017 and 2016, cash paid for domestic taxes was approximately $1.9 million and $1.9 million, respectively. During the nine months ended September 30, 2017 and 2016,~~2018, the Company ~~paid cash~~has not completed its accounting for ~~foreign taxes~~all of ~~$4.2 million~~the tax effects of the 2017 Tax Act nor has the Company recognized any significant adjustments to the provisional amounts recorded at December 31, 2017. In all cases, the Company will continue to make and ~~$2.2 million, respectively.~~refine its calculations, primarily regarding the Transition Tax, as additional analysis is completed. Horizon’s estimates may also be affected as it gains a more thorough understanding of the tax law. These changes could be material to income tax expense.

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~~2017 (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~~operations in North and South America, and we believe has been a leader in towing and trailering-related products sold through retail, aftermarket, OE, e-commerce and ~~e-commerce~~industrial 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~~America. Horizon Europe-Africa operates primarily in ~~Europe~~Germany, France, the United Kingdom, Romania, and South Africa, while Horizon Asia-Pacific operates primarily in Australia, ~~respectively,~~Thailand, and weNew Zealand. We believe Horizon Europe-Africa and Horizon Asia-Pacific 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~~channels in ~~the early stages of our development in these markets, initially focusing primarily on supporting OE customers.~~their regions.

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.

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.~~income (loss). As such, gross margins for the Horizon Americas reportable segment may not be comparable to those of our Horizon Europe-Africa and Horizon Asia-Pacific segments, which primarily rely on third-party distributors, for which all costs are included in cost of sales.

Goodwill impairment

We assess goodwill and indefinite-lived intangible assets for impairment at the reporting unit level on an annual basis as of October 1, after the annual forecasting process is complete. More frequent evaluations may be required if we experience changes in our business climate or as a result of other triggering events that take place. If the carrying value exceeds fair value, the asset is considered impaired and is reduced to fair value.

In the fourth quarter of 2017, we experienced a significant decline in our market capitalization. Further, the Horizon Europe-Africa reporting unit did not perform in-line with expectations during the fourth quarter, driven by a delayed closure and additional costs incurred relating to closing facilities in the United Kingdom and Sweden, delayed realization of price increases and inefficiencies transferring production to lower cost manufacturing sites. Because of the decline in market capitalization and fourth quarter results, we identified an indicator of impairment in the fourth quarter. As a result, we performed an interim quantitative assessment as of December 31, 2017, utilizing a combination of the income and market approaches, which were weighted evenly. The results of the quantitative analysis performed indicated the fair value of the reporting unit exceeded the carrying value by approximately 1.0%. Key assumptions used in the analysis were a discount rate of 13.0%, a terminal growth rate of 2.5% and EBITDA margin.

During the first quarter of 2018, the Company continued to experience a decline in market capitalization. Additionally, the Europe-Africa reporting unit did not perform in-line with forecasted results driven by a shift in volume to lower margin programs as well as increased commodity costs, which negatively impacted margins. As a result, an indicator of impairment was identified during the first quarter of 2018. The Company performed an interim quantitative assessment as of March 31, 2018, utilizing a combination of the income and market approaches, which were weighted evenly. The results of the quantitative analysis performed indicated the carrying value of the reporting unit exceeded the fair value of the reporting unit by $43.4 million and, accordingly, an impairment was recorded. Key assumptions used in the analysis were a discount rate of 13.5%, a terminal growth rate of 2.5% and EBITDA margin. The primary factors leading to the decline in value from the analysis performed at December 31, 2017 were a reduction in expected future cash flows, in part due to the Company re-evaluating its forecasted results and an increase in the discount rate, which is based on the segment’s weighted average cost of capital (“WACC”). Additionally, there was a decline in the value of the market approach due to a decrease in the market multiple used based on a decline seen with selected guideline companies. The decline in expected future cash flows resulted from a reduction of forecasted volumes on a significant OE program. While we have made up the lost volume, this has resulted in a reduced margin. Further, the business continued to be negatively impacted by rising input costs with a delayed ability to recover through price increases as well as inefficiencies with transferring production to lower cost facilities.

During the second quarter of 2018, the Company’s market capitalization decreased by approximately 27.7%. Additionally, the Europe-Africa reporting unit did not perform in-line with forecasted results driven by a shift in volume to lower margin channels, continued increase in commodity costs and the failure to realize benefits from certain margin improvement initiatives. As a result, an indicator of impairment was identified during the second quarter of 2018. The Company performed an interim quantitative assessment as of June 30, 2018, utilizing a combination of the income and market approaches. The income approach was weighted 75%, while the market approach was weighted 25%. The results of the quantitative analysis performed indicated the carrying value of the reporting unit exceeded the fair value of the reporting unit by $54.6 million and, accordingly, an impairment was recorded. Key assumptions used in the analysis were a discount rate of 14.0%, a terminal growth rate of 2.5% and EBITDA margin. The primary factors leading to the decline in value from the analysis performed at March 31, 2018 were a reduction in expected future cash flows, in part due to the Company re-evaluating its forecasted results and an increase in the discount rate, which is based on the segment’s WACC. Additionally, there was a decline in the value of the market approach due to a decrease in the market multiple used based on a decline seen with selected guideline companies. The decline in expected future cash flows resulted from a reduction in forecasted revenues, particularly in the higher margin aftermarket channel. Further, the business continued to be negatively impacted by rising commodity costs with a delayed ability to recover through price increases and the benefits of transferring production to lower cost facilities have not been realized. It is expected that additional restructuring expenses will be incurred in the near-term to generate the margins expected from this business.

Based on the results of the quantitative test, we performed sensitivity analysis around the key assumptions used in the analysis, the results of which were: a) a 100 basis point decline in EBITDA margin used to determine expected future cash flows would have resulted in an additional impairment of approximately $24.0 million and b) a 50 basis point increase in the discount rate would have resulted in an additional impairment of approximately $7.0 million.

Indefinite-lived intangible asset impairment test

Due to the impairment indicators noted above, we performed an interim impairment assessment for indefinite-lived intangible assets within the Horizon Europe-Africa reportable segment, for which the gross carrying amounts totaled approximately $12.1 million as of June 30, 2018. Based on the results of the Company’s analyses it was determined that the carrying values of the Westfalia and Terwa trade names exceeded their fair values by $1.1 million and, accordingly, an impairment was recorded. Key

assumptions used in the analysis were discount rates of 15.0% and royalty rates ranging from 0.5% to 1.0%. Based on the results of the quantitative test, we performed sensitivity analysis around the key assumptions used in the analysis, the results of which were: a) a 50 basis point increase in the discount rate used during our testing would have resulted in an additional impairment of approximately $0.4 million to our Westfalia and Terwa trade names, and b) a 25 basis point decrease in the royalty rates used during our testing would have resulted in an additional impairment of approximately $5.3 million to our trade names.

Segment Information and Supplemental Analysis

The following table summarizes financial information for our reportable segments for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017:


	Three months ended September 30,										Three months ended June 30,
	2017			As a Percentage of Net Sales		2016			As a Percentage of Net Sales		2018			As a Percentage of Net Sales		2017			As a Percentage of Net Sales
	(dollars in thousands)										(dollars in thousands)
Net Sales
Horizon Americas	$	115,460		48.1	%	$	110,730		73.0	%	$	108,080		46.3	%	$	138,110		54.5	%
Horizon Europe-Africa	87,950			36.6	%	13,050			8.6	%	90,840			38.9	%	86,580			34.1	%
Horizon Asia-Pacific	36,710			15.3	%	27,940			18.4	%	34,420			14.8	%	28,900			11.4	%
Total	$	240,120		100.0	%	$	151,720		100.0	%	$	233,340		100.0	%	$	253,590		100.0	%
Gross Profit
Horizon Americas	$	34,230		29.6	%	$	33,590		30.3	%	$	26,920		24.9	%	$	44,870		32.5	%
Horizon Europe-Africa	14,370			16.3	%	2,130			16.3	%	12,200			13.4	%	15,140			17.5	%
Horizon Asia-Pacific	9,820			26.8	%	6,790			24.3	%	8,450			24.5	%	7,660			26.5	%
Total	$	58,420		24.3	%	$	42,510		28.0	%	$	47,570		20.4	%	$	67,670		26.7	%
Selling, General and Administrative Expenses
Horizon Americas	$	23,220		20.1	%	$	20,690		18.7	%	$	24,340		22.5	%	$	22,130		16.0	%
Horizon Europe-Africa	11,640			13.2	%	1,900			14.6	%	12,200			13.4	%	11,500			13.3	%
Horizon Asia-Pacific	3,860			10.5	%	3,020			10.8	%	3,780			11.0	%	3,380			11.7	%
Corporate	6,080			N/A		10,240			N/A		15,690			N/A		6,420			N/A
Total	$	44,800		18.7	%	$	35,850		23.6	%	$	56,010		24.0	%	$	43,430		17.1	%
Net Loss on Disposition of Property and Equipment
Horizon Americas	$	(200	)	(0.2	)%	$	10		—	%
Horizon Europe-Africa	(80		)	(0.1	)%	(250		)	(1.9	%)
Horizon Asia-Pacific	(50		)	(0.1	)%	210			0.8	%
Corporate	—			N/A		—			N/A
Total	$	(330	)	(0.1	)%	$	(30	)	—	%
Operating Profit (Loss)
Horizon Americas	$	10,930		9.5	%	$	12,910		11.7	%	$	2,570		2.4	%	$	22,750		16.5	%
Horizon Europe-Africa	2,680			3.0	%	210			1.6	%	(55,690		)	(61.3	)%	3,610			4.2	%
Horizon Asia-Pacific	5,880			16.0	%	3,750			13.4	%	4,670			13.6	%	4,290			14.8	%
Corporate	(6,200		)	N/A		(10,240		)	N/A		(15,690		)	N/A		(6,410		)	N/A
Total	$	13,290		5.5	%	$	6,630		4.4	%	$	(64,140	)	(27.5	)%	$	24,240		9.6	%
Depreciation and Amortization
Horizon Americas	$	2,630		2.3	%	$	2,910		2.6	%	$	2,030		1.9	%	$	2,750		2.0	%
Horizon Europe-Africa	2,520			2.9	%	360			2.8	%	2,720			3.0	%	1,920			2.2	%
Horizon Asia-Pacific	1,250			3.4	%	1,060			3.8	%	1,210			3.5	%	940			3.3	%
Corporate	70			N/A		10			N/A		60			N/A		60			N/A
Total	$	6,470		2.7	%	$	4,340		2.9	%	$	6,020		2.6	%	$	5,670		2.2	%

The following table summarizes financial information for our reportable segments for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016:~~2017:


	Nine months ended September 30,										Six months ended June 30,
	2017			As a Percentage of Net Sales		2016			As a Percentage of Net Sales		2018			As a Percentage of Net Sales		2017			As a Percentage of Net Sales
	(dollars in thousands)										(dollars in thousands)
Net Sales
Horizon Americas	$	351,400		50.4	%	$	350,170		75.2	%	$	204,300		45.4	%	$	235,940		51.6	%
Horizon Europe-Africa	253,070			36.3	%	39,600			8.5	%	177,900			39.5	%	165,120			36.1	%
Horizon Asia-Pacific	92,520			13.3	%	75,820			16.3	%	67,950			15.1	%	55,810			12.2	%
Total	$	696,990		100.0	%	$	465,590		100.0	%	$	450,150		100.0	%	$	456,870		100.0	%
Gross Profit
Horizon Americas	$	105,780		30.1	%	$	102,290		29.2	%	$	45,970		22.5	%	$	71,550		30.3	%
Horizon Europe-Africa	42,070			16.6	%	6,550			16.5	%	23,630			13.3	%	27,700			16.8	%
Horizon Asia-Pacific	23,630			25.5	%	16,990			22.4	%	16,420			24.2	%	13,810			24.7	%
Total	$	171,480		24.6	%	$	125,830		27.0	%	$	86,020		19.1	%	$	113,060		24.7	%
Selling, General and Administrative Expenses
Horizon Americas	$	66,810		19.0	%	$	64,190		18.3	%	$	48,500		23.7	%	$	43,630		18.5	%
Horizon Europe-Africa	36,120			14.3	%	5,700			14.4	%	25,290			14.2	%	24,430			14.8	%
Horizon Asia-Pacific	10,310			11.1	%	8,120			10.7	%	7,360			10.8	%	6,450			11.6	%
Corporate	21,040			N/A		19,500			N/A		23,150			N/A		14,970			N/A
Total	$	134,280		19.3	%	$	97,510		20.9	%	$	104,300		23.2	%	$	89,480		19.6	%
Net Loss on Disposition of Property and Equipment
Horizon Americas	$	(240	)	(0.1	)%	$	(230	)	(0.1	%)
Horizon Europe-Africa	—			—	%	(270		)	(0.7	%)
Horizon Asia-Pacific	(80		)	(0.1	)%	(20		)	—	%
Corporate	(10		)	N/A		—			N/A
Total	$	(330	)	—	%	$	(520	)	(0.1	%)
Operating Profit (Loss)
Horizon Americas	$	38,840		11.1	%	$	35,630		10.2	%	$	(2,540	)	(1.2	)%	$	27,910		11.8	%
Horizon Europe-Africa	5,950			2.4	%	600			1.5	%	(100,780		)	(56.6	)%	3,270			2.0	%
Horizon Asia-Pacific	13,240			14.3	%	8,830			11.6	%	9,060			13.3	%	7,360			13.2	%
Corporate	(21,160		)	N/A		(19,500		)	N/A		(23,150		)	N/A		(14,960		)	N/A
Total	$	36,870		5.3	%	$	25,560		5.5	%	$	(117,410	)	(26.1	)%	$	23,580		5.2	%
Depreciation and Amortization
Horizon Americas	$	8,020		2.3	%	$	8,580		2.5	%	$	4,200		2.1	%	$	5,390		2.3	%
Horizon Europe-Africa	6,570			2.6	%	1,290			3.3	%	5,600			3.1	%	4,050			2.5	%
Horizon Asia-Pacific	3,150			3.4	%	3,070			4.0	%	2,410			3.5	%	1,900			3.4	%
Corporate	200			N/A		30			N/A		170			N/A		130			N/A
Total	$	17,940		2.6	%	$	12,970		2.8	%	$	12,380		2.8	%	$	11,470		2.5	%

Three Months Ended ~~September~~June 30, ~~2017~~2018 Compared with Three Months Ended ~~September~~June 30, ~~2016~~2017

Overall, net sales ~~increased~~decreased approximately ~~$88.4~~$20.3 million, or ~~58.3%~~8.0%, to ~~$240.1~~$233.3 million in the three months ended ~~September~~June 30, ~~2017,~~2018, as compared with ~~$151.7~~$253.6 million in the three months ended ~~September~~June 30, ~~2016. During the third quarter of~~ 2017, primarily driven by a decrease in net sales ~~within~~in our Horizon Americas reportable segment, which was partially offset by increases in our Horizon Europe-Africa and Horizon Asia-Pacific reportable segments. The decrease in net sales in our Horizon Americas reportable segment of approximately $30.0 million was driven by challenges transitioning to a distribution facility in Kansas City. This decrease was partially offset by an increase in net sales of $4.3 million in our Horizon Europe-Africa reportable segment, ~~increased $74.9 million primarily~~ driven by ~~our fourth quarter 2016 acquisition~~favorable currency exchange, and by an increase of ~~the Westfalia Group.~~$5.5 million in our Horizon Asia-Pacific reportable segment, ~~increased by $8.8 million~~ attributable ~~in part,~~ to a regional bolt-on acquisition completed in the third quarter ~~and net sales to a new customer. In our Horizon Americas reportable segment, net sales increased $4.7 million driven by increased net sales across most~~ of ~~our channels, except our retail channel, which remained relatively flat quarter-over-quarter.~~2017.

Gross profit margin (gross profit as a percentage of net sales) approximated ~~24.3%~~20.4% and ~~28.0%~~26.7% for the three months ended ~~September~~June 30, 2018 and 2017, ~~and 2016,~~ respectively. The overall decrease in gross profit margin is primarily the result of a shift in the concentration of net sales from our higher margin Horizon Americas reportable segment to our lower margin Horizon Europe-Africa reportable segment. Further negativelyNegatively impacting gross profit margin were unfavorable input costs, including commodity prices, and higher freight costs in both our Horizon Americas reportable segment which resulted in a decrease in gross profit margin quarter-over-quarter. These declines were partially offset by an improvement in our Horizon Asia-Pacific reportable segment primarily as a result of higher sales volumes and ~~productivity initiatives. Gross profit margin remained relatively flat in our~~ Horizon Europe-Africa reportable ~~segment.~~segments.

Operating profit margin (operating profit as a percentage of net sales) approximated ~~5.5%~~(27.5)% and ~~4.4%~~9.6% in the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. Operating profit ~~increased~~decreased approximately ~~$6.7~~$88.4 million ~~or 100.5%,~~ to an operating ~~profit~~loss of ~~$13.3~~$64.1 million in the three months ended ~~September~~June 30, 2018, from an operating profit of $24.2 million in the three months ended June 30, 2017, ~~from operating profit~~primarily due the impairment of goodwill and intangible assets totaling approximately $55.7 million in our Horizon Europe-Africa reportable segment. In addition, lower sales levels and higher commodity and freight costs negatively impacted the Horizon Americas reportable segment. The remainder of the decline is primarily attributable to higher corporate expenses.

Interest expense increased approximately $1.0 million to $6.2 million, in the three months ended June 30, 2018, as compared to $5.2 million in the three months ended June 30, 2017, as a result of an increase in utilization of our revolving credit facilities.

Other expense, net increased approximately $5.9 million to $6.6 million in the three months ended ~~September~~June 30, ~~2016, primarily due~~2018, as compared to higher sales volumes from the aforementioned acquisitions along with lower corporate expenses as acquisition and integration costs were lower quarter-over-quarter. These positive impacts were partially offset by a decline in our Horizon Americas reportable segment as this segment was negatively impacted by higher commodity, freight, and legal costs.

~~Interest expense increased approximately $1.4 million, to $5.5~~$0.7 million in the three months ended ~~September~~June 30, 2017, ~~as compared to $4.1 million in the three months ended September 30, 2016,~~ primarily due to ~~additional interest and non-cash amortization~~financing costs in connection with the pursuit of ~~debt discount and issuance costs related~~the Brink Group acquisition, which was expected to ~~our Convertible Notes issued during~~close in the ~~first~~second quarter of ~~2017.~~

~~Other expense, net increased approximately $0.3 million~~2018; however, the parties to ~~$1.3 million in~~ the ~~three months ended September 30, 2017, as compared~~acquisition agreement mutually agreed to ~~$1.0 million in~~terminate the ~~three months ended September 30, 2016, primarily due to losses on financing transactions denominated in foreign currencies within certain of our Horizon Asia-Pacific locations.~~transaction.

The effective income tax rate for the three months ended ~~September~~June 30, 2018 and 2017 was 12.7% and ~~2016 was (1.9)~~(9.0)% ~~and 75.8%~~, respectively. The ~~lower~~higher effective income tax rate in the three months ended ~~September~~June 30, ~~2017~~2018 is driven by a ~~higher portion~~decrease in tax benefits related to the release of ~~income earned~~certain unrecognized tax positions and the impairment of goodwill related to our Horizon Europe-Africa reportable segment which does not result in ~~jurisdictions with lower statutory rates and~~ the recognition of ~~additional~~a tax ~~credits recognized in the U.S.~~benefit.

Net income ~~increased~~decreased approximately ~~$6.2~~$87.1 million to ~~$6.6~~a net loss of $67.2 million in the three months ended ~~September~~June 30, ~~2017,~~2018, from net income of ~~$0.4~~$20.0 million in the three months ended ~~September~~June 30, ~~2016.~~2017. The ~~increase~~decrease in net income was ~~primarily~~ the result of a ~~$6.7~~$88.4 million ~~increase~~decrease in operating ~~profit~~income, driven by ~~higher sales volumes~~the impairment of goodwill and ~~lower corporate expenses.~~intangible assets in the second quarter of 2018.

See below for a discussion of operating results by segment.

Horizon Americas. Net sales ~~increased~~decreased approximately ~~$4.7~~$30.0 million, or ~~4.3%~~21.7%, to ~~$115.5~~$108.1 million in the three months ended ~~September~~June 30, ~~2017~~,2018, as compared to ~~$110.7~~$138.1 million in the three months ended ~~September~~June 30, ~~2016~~.2017. Net sales ~~increased~~decreased in all of our market channels. Our aftermarket, retail, e-commerce, and industrial channels ~~except for~~were negatively impacted by delivery delays out of our Kansas City distribution facility due to challenges implementing processes and a warehouse management system coupled with reduced carrier capacity. Net sales decreased $13.1 million in the aftermarket channel, $7.4 million in the retail channel, $6.5 million in the e-commerce channel, and $1.0 million in the industrial channel. Further contributing to the lower net sales in the retail channel was the sale of the Broom and Brush product line during the fourth quarter of 2017. Net sales in our automotive OE channel ~~increased~~decreased approximately ~~$2.0~~$1.6 million primarily as a result of lower demand due to increased volume of brake controllers and heavy duty products on existing programs. Net sales in our e-commerce channel increased approximately $1.2 million primarily due to higher demand as we believe the way consumers do business appears to be evolving to online research and purchasing. Partially offsetting this increase was reduced sales to certain customers who did not maintain channel pricing discipline. Net sales in our aftermarket channel increased approximately $1.0 million based on increased sales with our warehouse distribution partners. In our industrial channel, net sales increased by approximately $0.6 million due to increased product availability and consumer demand for on-road trailers. Net sales were relatively flat in our retail channel, with an approximate $0.1 million decrease, as higher sales in farm and fleet and auto retail were more than offset byunplanned downtime at a ~~decrease with our mass merchant customers.~~significant customer. The remainder of the change is a result of ~~favorable~~unfavorable currency exchange as the Brazilian real ~~strengthened~~weakened in relation to the U.S. dollar.

Horizon Americas’ gross profit ~~increased~~decreased approximately ~~$0.6~~$18.0 million to ~~$34.2~~$26.9 million, or ~~29.6%~~24.9% of net sales, in the three months ended ~~September~~June 30, ~~2017,~~2018, from approximately ~~$33.6~~$44.9 million, or ~~30.3%~~32.5% of net sales, in the three months ended ~~September~~June 30, ~~2016. The increase~~2017, primarily due to lower sales levels. Gross profit margin was negatively impacted by $3.6 million of unfavorable input costs, including higher commodity prices in advance of pricing actions, and higher freight costs due to reduced carrier capacity and our distribution footprint project. Further contributing to a decline in gross profit margin was $1.7 million of costs related to fines and penalties due to lower fulfillment rates, $1.0 million of costs associated with closures of our Solon, Ohio and Mosinee, Wisconsin shared service and engineering facilities, and $0.4 million of outside service provider and expedited freight costs due to the ~~higher~~paintline upgrade in our Mexico manufacturing facility completed in the fourth quarter of 2017. The remainder of the change is a result of unfavorable market channel mix as sales volumes ~~discussed above. The primary factors negatively impacting gross profit~~in our higher margin were $2.6 million of unfavorable commodity prices and higher freight costs. Partially offsetting these decreases were approximately $0.5 million of lower costs associated with the consolidation of our manufacturing facilities during the thirdaftermarket channel declined quarter-over-quarter.

~~quarter of 2016 that did not reoccur in 2017. Also benefiting gross profit margin were improved customer and product sales mix and pricing increases we were able to pass on to customers.~~

Selling, general and administrative expenses increased approximately ~~$2.5~~$2.2 million to ~~$23.2~~$24.3 million, or ~~20.1%~~22.5% of net sales, in the three months ended ~~September~~June 30, ~~2017,~~2018, as compared to ~~$20.7~~$22.1 million, or ~~18.7%~~16.0% of net sales, in the three months ended ~~September~~June 30, ~~2016. The increase is~~2017, primarily due to approximately $3.0 million of costs, including severance, associated with ~~a project~~the aforementioned facility closures. Also contributing to ~~optimize~~the increase in selling, general and administrative expenses were $0.9 million of costs to realign our distribution footprint ~~increased variable distribution~~including higher people costs and ~~higher legal~~rental expense and $0.7 million of costs ~~associated with protecting our intellectual property.~~related to other organizational restructuring efforts. Partially offsetting these increases were $1.3 million of lower incentive compensation, $0.8 million of lower amortization as certain customer relationships have become fully amortized, and $0.3 million of lower travel and entertainment expenses.

Horizon Americas’ operating profit ~~decreased approximately $2.0 million to $10.9~~of $2.6 million, or ~~9.5%~~2.4% of net sales, reflects a decline of $20.2 million in the three months ended June 30, 2018, as compared to an operating profit of $22.8 million, or 16.5% of net sales, in the three months ended ~~September~~June 30, 2017. Operating profit and operating profit margin decreased primarily due to lower sales levels and unfavorable commodity prices in advance of pricing actions, higher freight costs, and costs incurred for ongoing operational improvement projects.

Horizon Europe-Africa. Net sales increased approximately $4.3 million, or 4.9%, to $90.8 million in the three months ended June 30, 2018, compared to $86.6 million in the three months ended June 30, 2017, primarily due to favorable currency exchange of approximately $6.1 million as the euro strengthened in relation to the U.S. dollar. Positively impacting net sales was an increase of $1.0 million in the automotive OE channel as this channel benefited from higher volume with existing customers. Net sales in the aftermarket channel decreased $3.4 million due to limited product availability as a result of our production shift to our Braşov, Romania production facility, and lower demand from our warehouse distributor customers. The remainder of the change is primarily a result of higher sales in our non-automotive businesses.

Horizon Europe-Africa’s gross profit decreased approximately $2.9 million to $12.2 million, or 13.4% of net sales, in the three months ended June 30, 2018, from approximately $15.1 million, or 17.5% of net sales, in the three months ended June 30, 2017. Gross profit margin was negatively impacted by unfavorable commodity costs in advance of pricing actions and higher freight costs. Further, approximately $0.5 million in restructuring costs, related to closures of certain manufacturing facilities in the United Kingdom and Nordic region, contributed to the decline in gross profit margin. Partially offsetting these decreases was approximately $0.7 million of favorable currency exchange.

Selling, general and administrative expenses increased approximately $0.7 million to $12.2 million, or 13.4% of net sales, in the three months ended June 30, 2018, as compared to ~~$12.9~~$11.5 million, or 13.3% of net sales, in the three months ended June 30, 2017 The increase is primarily attributable to approximately $0.4 million of restructuring costs, related to the aforementioned facility closures, and approximately $0.2 million of expenses related to the terminated acquisition of the Brink Group. Further, unfavorable currency exchange of approximately $1.4 million was partially offset by $1.3 million of lower people costs driven by a decrease in incentive compensation.

Horizon Europe-Africa’s operating loss increased approximately $59.3 million to an operating loss of $55.7 million, or (61.3)% of net sales, in the three months ended June 30, 2018, as compared to an operating profit of $3.6 million, or 4.2% of net sales, in the three months ended June 30, 2017, primarily due to the impairment of goodwill and trademarks and trade names of approximately $55.7 million. The remainder of the decrease is due to unfavorable commodity costs which have not been fully recovered through pricing actions and higher freight costs.

Horizon Asia-Pacific. Net sales increased approximately $5.5 million, or 19.1%, to $34.4 million in the three months ended June 30, 2018, compared to $28.9 million in the three months ended June 30, 2017. A regional bolt-on acquisition, completed in the third quarter of 2017, contributed $5.5 million in net sales. Additionally, an increase due to favorable currency exchange, as the Australian dollar, Thai baht, and New Zealand dollar strengthened in relation to the U.S. dollar, was offset by a small decline in sales across all of our other channels in the region.

Horizon Asia-Pacific’s gross profit increased approximately $0.8 million to $8.5 million, or 24.5% of net sales, in the three months ended June 30, 2018, from approximately $7.7 million, or 26.5% of net sales, in the three months ended June 30, 2017. The improvement in gross profit was driven by the increased sales volumes from the aforementioned acquisition. Gross profit margin was negatively impacted by higher input costs in Australia, which was partially offset by efficiencies realized in Thailand. The remainder of the change is due to favorable currency exchange.

Selling, general and administrative expenses increased approximately $0.4 million to $3.8 million, or 11.0% of net sales, in the three months ended June 30, 2018, as compared to $3.4 million, or 11.7% of net sales, in the three months ended ~~September~~June 30, ~~2016. Operating~~2017, due to the inclusion of the aforementioned acquisition in results.

Horizon Asia-Pacific’s operating profit increased approximately $0.4 million to $4.7 million, or 13.6% of net sales, in the three months ended June 30, 2018, as compared to $4.3 million, or 14.8% of net sales, in the three months ended June 30, 2017, remaining relatively flat quarter-over-quarter as increased volumes and ongoing operational improvements were partially offset by higher input costs.

Corporate Expenses. Corporate expenses included in operating profit (loss) increased approximately $9.3 million to $15.7 million in the three months ended June 30, 2018, as compared to $6.4 million in the three months ended June 30, 2017. The increase is primarily attributed to approximately a $5.5 million break fee in connection with the termination of the Brink Group acquisition and $3.4 million of related expenses.. Further increasing corporate expenses was approximately $2.7 million of severance costs associated with the previously announced termination of the Company’s Chief Executive Officer. The remainder of the change was a result of lower incentive compensation and lower costs related to the integration of the Westfalia Group.

Six Months Ended June 30, 2018 Compared with Six Months Ended June 30, 2017

Overall, net sales decreased approximately $6.7 million, or 1.5%, to $450.2 million for the six months ended June 30, 2018, as compared with $456.9 million in the six months ended June 30, 2017, primarily driven by a decrease in net sales in our Horizon Americas reportable segment which was partially offset by increases in our Horizon Europe-Africa and Horizon Asia-Pacific reportable segments. The decrease in net sales in our Horizon Americas reportable segment of approximately $31.6 million was driven by challenges transitioning to a distribution facility in Kansas City. This decrease was partially offset by a net sales increase of $12.8 million in our Horizon Europe-Africa reportable segment, driven by favorable currency exchange, and by an increase of $12.1 million in our Horizon Asia-Pacific reportable segment, attributable to a regional bolt-on acquisition completed in the third quarter of 2017.

Gross profit margin ~~decreased due to~~(gross profit as a percentage of sales) approximated 19.1% and 24.7% for the six months ended June 30, 2018 and 2017, respectively. Negatively impacting gross profit margin were unfavorable input costs, including commodity prices, and higher freight ~~variable distribution,~~costs in both our Horizon Americas and ~~legal costs. Also contributing~~Horizon Europe-Africa reportable segments.

Operating profit margin (operating profit as a percentage of sales) approximated (26.1)% and 5.2% for the six months ended June 30, 2018 and 2017, respectively. Operating profit decreased approximately $141.0 million, or 597.9%, to an operating loss of $117.4 million for the six months ended June 30, 2018, compared to an operating profit of $23.6 million for the six months ended June 30, 2017, primarily due to the impairment of goodwill and intangible assets totaling approximately $99.1 million in our Horizon Europe-Africa reportable segment. In addition, lower sales levels and higher commodity and freight costs negatively impacted the Horizon Americas reportable segment. The remainder of the decline is primarily attributable to higher corporate expenses.

Interest expense increased approximately $1.0 million, to $12.1 million, for the six months ended June 30, 2018, as compared to $11.1 million for the six months ended June 30, 2017, as a result of an increase in utilization of our revolving credit facilities.

Other expense, net increased approximately $6.5 million to $7.7 million for the six months ended June 30, 2018 compared to $1.3 million for the six months ended June 30, 2017, primarily due to financing costs in connection with the pursuit of the Brink Group acquisition which was expected to close in the second quarter of 2018; however, the parties to the acquisition agreement mutually agreed to terminate the transaction.

The effective income tax rates for the six months ended June 30, 2018 and 2017 was 9.0% and (49.1)%, respectively. The higher effective income tax rate in the six months ended June 30, 2018 is driven by a decrease in tax benefits related to the release of certain unrecognized tax positions and the impairment of goodwill related to our Horizon Europe-Africa reportable segment which does not result in the recognition of a tax benefit.

Net income decreased by approximately $134.7 million, to a net loss of $124.9 million for the six months ended June 30, 2018, compared to net income of $9.8 million for the six months ended June 30, 2017. The decrease is primarily the result of a $141.0 million decrease in operating profit, driven by the impairment of goodwill and intangible assets in the first half of 2018, which was partially offset by a $4.6 million loss on the extinguishment of debt during 2017 that did not reoccur in 2018.

See below for a discussion of operating results by segment.

Horizon Americas. Net sales decreased approximately $31.6 million, or 13.4%, to $204.3 million in the six months ended June 30, 2018, as compared to $235.9 million in the six months ended June 30, 2017. Net sales decreased in all of our market channels. Our aftermarket, retail, and e-commerce channels were negatively impacted by delivery delays out of our Kansas City distribution facility due to challenges implementing processes and a warehouse management system coupled with reduced carrier capacity. Net sales decreased $13.9 million in the aftermarket channel, $8.3 million in our retail channel, and $6.5 million in our e-commerce channel. Net sales in our automotive OE channel decreased approximately $1.7 million primarily as a result of lower demand due to unplanned downtime at a significant customer. Net sales in our industrial channel decreased $0.6 million as increased demand from trailer manufacturers was more than offset by challenges in transitioning to the Kansas City distribution facility. The remainder of the change is primarily due to unfavorable currency exchange as the Brazilian real weakened in relation to the U.S. dollar.

Horizon Americas’ gross profit decreased approximately $25.6 million to $46.0 million, or 22.5% of net sales, in the six months ended June 30, 2018, as compared to $71.6 million, or 30.3% of net sales, in the six months ended June 30, 2017. Negatively

impacting gross profit margin was $8.6 million of unfavorable input costs, including higher commodity prices in advance of pricing actions, and higher freight costs due to reduced carrier capacity. Further contributing to a decline in gross profit margin was approximately $2.4 million of costs related to fines and penalties due to lower fulfillment rates and $1.0 million of costs associated with ~~optimizing~~closures of our Solon, Ohio and Mosinee, Wisconsin shared serviced and engineering facilities. Gross profit margin was negatively impacted by $1.3 million of outside service provider and expedited freight costs due to the paintline upgrade in our Mexico manufacturing facility completed in the fourth quarter of 2017. The remainder of the change is primarily a result of unfavorable market channel mix and lower sales levels.

Selling, general and administrative expenses increased approximately $4.9 million to $48.5 million, or 23.7% of net sales, in the six months ended June 30, 2018, as compared to $43.6 million, or 18.5% of net sales, in the six months ended June 30, 2017, primarily due to approximately $2.3 million of costs associated with a project to optimize our distribution ~~footprint. These decreases~~footprint, $3.0 million of costs, including severance, associated with the aforementioned facility closures, and $1.3 million of costs related to other organizational restructuring efforts. Partially offsetting these increases were ~~partially offset by increased~~$1.3 million of lower incentive compensation and $1.4 million of lower amortization as certain customer relationships have become fully amortized. The remainder of the increase is primarily due to higher professional fees related to manufacturing consulting services to improve manufacturing efficiencies in our Reynosa, Mexico facility.

Horizon Americas’ operating profit decreased approximately $30.5 million to an operating loss of $2.5 million, or (1.2)% of net sales, ~~levels.~~in the six months ended June 30, 2018, as compared to an operating profit of $27.9 million, or 11.8% of net sales, in the six months ended June 30, 2017. Operating profit and operating profit margin decreased primarily due to lower sales levels and unfavorable commodity prices in advance of pricing actions, higher freight costs, and costs incurred for ongoing operational improvement projects.

Horizon Europe-Africa. Net sales increased approximately ~~$74.9~~$12.8 million, or ~~573.9%~~7.7%, to ~~$88.0~~$177.9 million in the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2018, as compared to ~~$13.1~~$165.1 million in the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2017, primarily due to favorable currency exchange of approximately $17.4 million as the ~~acquisition~~euro strengthened in relation to the U.S. dollar. Positively impacting net sales was an increase of $2.5 million in the automotive OE channel as this channel benefited from higher volume with existing customers. Net sales in the aftermarket channel decreased $6.8 million due to limited product availability as a result of our production shift to our Braşov, Romania production facility, and customer rationalization efforts. The remainder of the ~~Westfalia Group~~change is due to a small increase in ~~the fourth quarter of 2016.~~e-commerce that was more than offset by lower sales in our non-automotive businesses.

Horizon Europe-Africa’s gross profit ~~increased~~decreased approximately ~~$12.2~~$4.1 million to ~~$14.4~~$23.6 million, or ~~16.3%~~13.3% of net sales, in the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2018, from approximately ~~$2.1~~$27.7 million, or ~~16.3%~~16.8% of net sales, in the ~~three~~six months ended ~~September~~June 30, ~~2016. The increase~~2017. Gross profit margin was negatively impacted by unfavorable commodity costs, in ~~gross profit is attributable to the Westfalia Group acquisition.~~advance of pricing actions and higher freight costs. Partially offsetting these decreases was approximately $2.3 million of favorable currency exchange.

Selling, general and administrative expenses increased approximately ~~$9.7~~$0.9 million to ~~$11.6~~$25.3 million, or ~~13.2%~~14.2% of net sales, in the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2018, as compared to ~~$1.9~~$24.4 million, or ~~14.6%~~14.8% of net sales, in the ~~three~~six months ended ~~September~~June 30, ~~2016. The increase is primarily attributable to the aforementioned acquisition, which includes $2.0~~2017. Unfavorable foreign currency exchange of approximately $3.0 million was partially offset by $1.9 million of ~~depreciation~~lower people costs, driven by a decrease in incentive compensation, and ~~amortization related to purchase accounting. Further contributing to the increase was approximately $1.1 million of~~lower severance and ~~integration related~~restructuring costs ~~in connection with the acquisition during the quarter.~~year-over-year.

Horizon Europe-Africa’s operating profit ~~increased~~decreased approximately ~~$2.5~~$104.1 million to ~~$2.7~~an operating loss of approximately $100.8 million, or ~~3.0%~~(56.6)% of net sales, in the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2018, as compared to ~~$0.2~~an operating profit of $3.3 million, or ~~1.6%~~2.0% of net sales, in the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2017, primarily ~~attributable~~due to the ~~acquisition mentioned above.~~impairment of goodwill and trademark and trade names of approximately $99.1 million. The remainder of the decrease is due to unfavorable commodity costs which have not been fully recovered through pricing actions and higher freight costs.

Horizon Asia-Pacific. Net sales increased approximately ~~$8.8~~$12.1 million, or ~~31.4%~~21.8%, to ~~$36.7~~$68.0 million in the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2018, compared to ~~$27.9~~$55.8 million in the ~~three~~six months ended ~~September~~June 30, ~~2016. The increase in net sales is attributable, in part, to a~~2017. A regional bolt-on acquisition ~~early~~contributed an increase of $10.2 million in ~~the quarter, which increased~~ net sales by approximately $6.0 million. Excluding the impact from this acquisition, net sales in our automotive OE channel decreased $0.6 million, primarily attributable to volume from a program that did not continue into 2017. The aftermarket sales channel decreased approximately $0.5 million due to reduced sales with a customer that did not maintain market discipline. Net sales in the industrial channel increased approximately $2.5 million due to increased sales with a new customer acquired in late 2016.sales. The remainder of the increase is ~~primarily~~ due to favorable currency exchange as the Australian dollar, Thai baht, and New Zealand dollar strengthened in relation to the U.S. dollar.

Horizon Asia-Pacific’s gross profit increased approximately ~~$3.0~~$2.6 million to ~~$9.8~~$16.4 million, or ~~26.8%~~24.2% of net sales, in the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2018, from approximately ~~$6.8~~$13.8 million, or ~~24.3%~~24.7% of net sales, in the ~~three~~six months ended ~~September~~June 30, ~~2016.~~2017. The ~~increase~~improvement in gross profit ~~is primarily~~was driven by the increased sales ~~volumes, which increased gross profit by $2.1 million.~~volume from the aforementioned acquisition. Gross profit margin was ~~positively~~negatively impacted by higher input costs in Australia which were partially offset by the results of ~~ongoing~~ productivity initiatives in ~~our Australian business and efficiencies realized in Thailand as a result of the restructuring of operations completed in the second quarter of 2017.~~Thailand.

Selling, general and administrative expenses increased approximately ~~$0.8~~$0.9 million to ~~$3.9 million, or 10.5% of net sales, in the three months ended September 30, 2017, as compared to $3.0~~$7.4 million, or 10.8% of net sales, in the ~~three~~six months ended ~~September~~June 30, ~~2016. The increase~~2018, as compared to $6.5 million, or 11.6% of net sales, in the six months ended June 30, 2017, primarily due to the inclusion of the aforementioned acquisition in results, which increased selling, general and administrative expenses is primarily due to the aforementioned acquisition, which contributed $0.4 million of acquisition-related costs. Further impacting selling, general and administrative expenses during the quarter was increased personnel costs of $0.3 million in support of growth and productivity initiatives.by approximately $0.8 million. The ~~balance~~remainder of the ~~increase in selling, general and administrative expenses was caused by~~change is a result of unfavorable currency exchange.

Horizon Asia-Pacific’s operating profit increased approximately ~~$2.1~~$1.7 million to ~~$5.9~~$9.1 million, or ~~16.0%~~13.3% of net sales, in the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2018, as compared to ~~$3.8~~$7.4 million, or ~~13.4%~~13.2% of net sales, in the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2017, primarily due to increased ~~sales~~ volumes ~~and operational improvements, partially offset by acquisition costs.~~from the aforementioned acquisition.

Corporate Expenses. Corporate expenses included in operating profit ~~decreased approximately $4.0 million to $6.2 million in the~~ ~~three months ended September 30, 2017~~, as compared to $10.2 million in the three months ended September 30, 2016. The decrease is attributed to approximately $4.6 million of lower costs associated with the acquisition of the Westfalia Group which was partially offset by an increase in severance and restructuring related costs.

~~Nine Months Ended September 30, 2017 Compared with Nine Months Ended September 30, 2016~~

Overall, net sales increased approximately $231.4 million, or 49.7%, to $697.0 million for the nine months ended September 30, 2017, as compared with $465.6 million in the nine months ended September 30, 2016. During the first nine months of 2017, net sales in our Horizon Europe-Africa reportable segment increased $213.5 million primarily driven by our fourth quarter 2016 acquisition of the Westfalia Group. Net sales in our Horizon Asia-Pacific reportable segment increased $16.7 million due to a regional bolt-on acquisition and net sales to a new customer. Net sales increased approximately $1.2 million in our Horizon Americas reportable segment due to increases in our e-commerce, industrial and automotive OE channels, which were partially offset by decreases in our retail and aftermarket channels.

Gross profit margin (gross profit as a percentage of sales) approximated 24.6% and 27.0% for the nine months ended September 30, 2017 and 2016, respectively. Gross profit margin increased across all of our reportable segments; however, an overall decline is the result of a shift in the concentration of net sales from our higher margin Horizon Americas reportable segment to our lower margin Horizon Europe-Africa segment. Gross profit margin improved in our Horizon Americas reportable segment as the consolidation of our manufacturing facilities that occurred in 2016 resulted in lower costs and cost savings in 2017, which more than offset the negative impacts of unfavorable commodity prices. An increase in gross profit margin in our Horizon Asia-Pacific reportable segment is attributable to increased sales volumes and productivity initiatives. Gross profit margin in our Horizon Europe-Africa reportable segment increased primarily as a result of the acquisition of the Westfalia Group.

Operating profit margin (operating profit as a percentage of sales) approximated 5.3% and 5.5% for the nine months ended September 30, 2017 and 2016, respectively. Operating profit increased approximately $11.3 million, or 44.2%, to $36.9 million for the nine months ended September 30, 2017, compared to $25.6 million for the nine months ended September 30, 2016, as a result of an operating profit margin improvement across all of our reportable segments, which was offset by higher corporate expenses driven by increased professional fees and people costs.

Interest expense increased approximately $4.1 million, to $16.7 million, for the nine months ended September 30, 2017, as compared to $12.6 million for the nine months ended September 30, 2016, primarily due to additional interest and non-cash amortization of debt discount and issuance costs related to our Convertible Notes issued during 2017.

Other expense, net increased approximately $0.4 million to $2.6 million for the nine months ended September 30, 2017 compared to $2.2 million for the nine months ended September 30, 2016, primarily due to losses on financing transactions denominated in foreign currencies within certain of our Horizon Asia-Pacific locations.

The effective income tax rates for the nine months ended September 30, 2017 and 2016 were (25.7)% and 8.3%, respectively. The lower effective income tax rate in the nine months ended September 30, 2017 is driven by the recognition of the income tax benefits associated with stock awards issued, the release of certain unrecognized tax positions, and the recognition of additional tax credits in the U.S.

Net income increased by approximately $6.5 million, to $16.4 million for the nine months ended September 30, 2017, compared to $9.9 million for the nine months ended September 30, 2016. The increase is primarily the result of an increase in operating profit of $11.3 million and an increase in income tax benefit of $4.3 million. Partially offsetting these increases were $4.1 million increase in interest expense and a $4.6 million loss on extinguishment of debt due to a prepayment made on our Term B Loan in the first quarter of 2017.

~~See below for a discussion of operating results by segment.~~

~~Horizon Americas.~~ Net sales increased approximately $1.2 million, or 0.4%, to $351.4 million in the nine months ended September 30, 2017, as compared to $350.2 million in the nine months ended September 30, 2016. Net sales in our e-commerce channel increased by approximately $3.4 million as higher demand from major e-commerce customers more than offset the decreased sales to certain customers who did not maintain channel pricing discipline. Net sales in our industrial channel increased approximately $2.1 million as product availability has increased throughout the year. Net sales in our automotive OE channel increased approximately $0.6 million due to increased volumes on existing programs with major customers, partially offset by higher volumes in 2016 due to the launch of a new program with another major customer that did not reoccur. Partially offsetting these increases were decreases in our retail and aftermarket channels. Net sales in our retail channel decreased approximately $2.9 million. Point of sale weakness at our mass merchant retail customers, across their product lines, resulted in lower sales levels. Net sales in our aftermarket channel decreased by approximately $2.5 million primarily due to challenges faced during the integration of our ERP system in 2017, which were partially offset by increased sales within our warehouse distribution partners. The remainder of the change is due to favorable currency exchange as the Brazilian real strengthened in relation to the U.S. dollar.

Horizon Americas’ gross profit increased approximately $3.5 million to $105.8 million, or 30.1% of net sales, in the nine months ended September 30, 2017, as compared to $102.3 million, or 29.2% of net sales, in the nine months ended September 30, 2016, Positively impacting gross profit margin was approximately $4.0 million of lower costs associated with the consolidation of Horizon Americas’ manufacturing facilities during 2016 that did not reoccur in 2017. 2017 also benefited from $2.6 million in cost savings

due to the consolidation of Horizon Americas’ manufacturing facilities in 2016. Negatively impacting gross profit margin was approximately $4.4 million of unfavorable commodity prices and freight costs.

Selling, general and administrative expenses increased approximately $2.6 million to $66.8 million, or 19.0% of net sales, in the nine months ended September 30, 2017, as compared to $64.2 million, or 18.3% of net sales, in the nine months ended September 30, 2016. The increase is primarily due to higher distribution costs of approximately $2.1 million along with higher legal costs associated with protecting our intellectual property.

Horizon Americas’ operating profit increased approximately $3.2 million to $38.8 million, or 11.1% of net sales, in the nine months ended September 30, 2017, as compared to $35.6 million, or 10.2% of net sales, in the nine months ended September 30, 2016. Operating profit margin increased primarily due to the favorable impact of approximately $4.9 million of lower costs associated with the consolidation of our manufacturing footprint and approximately $2.2 million of lower expense related to the impairment of intangible assets during 2016. Partially offsetting these increases were unfavorable commodity prices and higher freight costs.

~~Horizon Europe-Africa.~~ ~~Net sales increased approximately $213.5 million, or 539.1%, to $253.1 million in the~~ ~~nine~~ months ended September 30, 2017, as compared to $39.6 million in the nine months ended September 30, 2016, which is primarily due to the Westfalia Group acquisition. Net sales were negatively impacted by approximately $0.7 million of unfavorable currency exchange as the British pound weakened in relation to the U.S. dollar.

~~Horizon Europe-Africa’s gross profit increased approximately $35.5 million to $42.1 million, or 16.6% of net sales, in the~~ ~~nine~~ ~~months ended September 30, 2017, from approximately $6.6 million, or 16.5% of net sales, in the nine months ended September 30, 2016, driven by the Westfalia Group acquisition.~~

~~Selling, general and administrative expenses increased approximately $30.4 million to $36.1 million, or 14.3% of net sales, in the~~ ~~nine~~ ~~months ended September 30, 2017, as compared to $5.7 million, or 14.4% of net sales, in the~~ ~~nine~~ months ended September 30, 2016. The increase is primarily attributable to the aforementioned acquisition, which includes $5.0 million of depreciation and amortization related to purchase accounting. Additionally, we incurred approximately $4.0 million of severance and integration related costs in connection with the Westfalia Group acquisition during the 2017 period.

~~Horizon Europe-Africa’s operating profit increased approximately $5.4 million to approximately $6.0 million, or 2.4% of net sales, in the~~ ~~nine~~ ~~months ended September 30, 2017, as compared to $0.6 million, or 1.5% of net sales, in the nine months ended September 30, 2016, primarily attributable to the acquisition mentioned above.~~

~~Horizon Asia-Pacific.~~ Net sales increased approximately $16.7 million, or 22.0%, to $92.5 million in the nine months ended September 30, 2017, compared to $75.8 million in the nine months ended September 30, 2016. A regional bolt-on acquisition contributed an increase of $6.0 million in net sales. Net sales in our automotive OE channel, exclusive of this acquisition, increased $1.8 million due to increased volumes on existing programs. An increase of $6.8 million in net sales in our industrial channel is primarily due programs with a new customer. The remainder of the increase is primarily due to favorable currency exchange as the Australian dollar, Thai baht, and New Zealand dollar strengthened in relation to the U.S. dollar.

Horizon Asia-Pacific’s gross profit increased approximately $6.6 million to $23.6 million, or 25.5% of net sales, in the nine months ended September 30, 2017, from approximately $17.0 million, or 22.4% of net sales, in the nine months ended September 30, 2016. $3.7 million of the increase in gross profit is driven by the increased sales volumes mentioned above. Gross profit margin was further positively impacted by the results of productivity initiatives in our Australian business and and efficiencies realized in Thailand due to restructuring of operations completed in the second quarter of 2017.

Selling, general and administrative expenses increased approximately $2.2 million to $10.3 million, or 11.1% of net sales, in the nine months ended September 30, 2017, as compared to $8.1 million, or 10.7% of net sales, in the nine months ended September 30, 2016. The increase in selling, general and administrative expenses is primarily due to the timing of marketing and promotional spend, increased people costs in support of growth initiatives, and operational restructuring costs. Additionally, selling, general and administrative expenses was increased by acquisition-related costs of $0.5 million. Further negatively impacting selling, general and administrative expenses was $0.3 million in unfavorable currency exchange.

Horizon Asia-Pacific’s operating profit increased approximately $4.4 million to $13.2 million, or 14.3% of net sales, in the nine months ended September 30, 2017, as compared to $8.8 million, or 11.6% of net sales, in the nine months ended September 30, 2016, primarily due to increased volumes and operational improvements across the region.

~~Corporate Expenses.~~ ~~Corporate expenses~~(loss) increased approximately $~~1.7~~8.2 million to $~~21.2~~23.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, from $~~19.5~~15.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017. The increase between years is primarily ~~attributed~~attributable to an increase in professional fees for various human resource, information technology, and compliance initiatives, and increased people costs as we have continued to build out our corporate structure. These increases were partially offset by approximately ~~$2.0~~$9.8 million of ~~lower~~expenses related to the termination of the Brink Group acquisition, which includes a $5.5 million break fee. Further increasing corporate expenses was approximately $2.7 million of severance costs associated with the ~~acquisition~~previously announced termination of the Company’s Chief Executive Officer. Partially offsetting these increases were $2.6 million of costs incurred in 2017, related to the integration of the Westfalia ~~Group.~~Group, which did not reoccur in 2018. The remainder of the change was a result of lower incentive compensation.

Liquidity and Capital Resources

Our capital and working capital requirements are funded through a combination of cash flows from operations, cash on hand and various borrowings and factoring arrangements described below, including our ABL Facility. We utilize intercompany loans and equity contributions to fund our worldwide operations. See Note 7,8, “Long-term Debt” included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” within this quarterly report on Form 10-Q. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, there was ~~$14.2~~$20.0 million and ~~$20.2~~$23.7 million, respectively, of cash held at foreign subsidiaries. There may be country specific regulations that may restrict or result in increased costs in the repatriation of these funds.

Based on our ~~current and~~ anticipated levels of operations and the condition in our markets and industry, we believe that our cash on hand, cash flow from operations, ~~and~~ availability under our ABL Facility and the funding provided by Term Loan will enable us to meet our working capital, capital expenditures, debt service and other funding requirements for at least the next twelve months. However, our ability to fund our working capital needs, debt payments and other obligations, and to comply with financial covenants, including borrowing base limitations under our ABL Facility, depends on our future operating performance and cash flow and many factors outside of our control, including the costs of raw materials, the state of the automotive accessories market and financial and economic conditions and other factors. Any future acquisitions, joint ventures or other similar transactions will likely require additional capital and there can be no assurance that any such capital will be available to us on acceptable terms, if at all.

Cash Flows - Operating Activities

Net cash used for operating activities was approximately ~~$2.3~~$35.4 million during ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to a ~~source~~use of approximately ~~$27.5~~$14.6 million during the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company ~~generated $47.9~~used $9.5 million in cash flows, based on the reported net ~~income~~loss of ~~$16.4~~$124.9 million and after considering the effects of non-cash items related to losses on dispositions of property and equipment, depreciation, amortization, goodwill impairment, stock compensation, ~~amortization of inventory step-up recorded as part of purchase accounting,~~ changes in deferred income taxes, ~~loss on extinguishment of debt,~~ amortization of original issue discount and debt issuance costs, and other, net. During the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, the Company generated ~~$27.6~~$31.9 million based on the reported net income of ~~$9.9~~$9.8 million and after considering the effects of similar non-cash ~~items.~~items plus the loss on extinguishment of debt.

Changes in operating assets and liabilities used approximately ~~$50.2~~$25.8 million and ~~$0.1~~$46.4 million of cash during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. Increases in accounts receivable resulted in a use of cash of ~~$28.4~~$40.5 million and ~~$8.3~~$40.4 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. The ~~increase~~use of cash in ~~accounts receivable for~~ both periods ~~is a~~was the result of ~~the~~ higher sales activity during the ~~third~~second quarter compared to the fourth quarter due to ~~the~~ seasonality of ~~the business. The higher~~our businesses. Additionally, in 2018 there was an increase in ~~accounts~~the tax benefit receivable for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 is due to increased sales levels in 2017, which is partially attributable to the Westfalia acquisition.of approximately $8.6 million as a result of domestic losses.

Changes in inventory resulted in a source of cash of approximately $0.5 million during the six months ended June 30, 2018 and a use of cash of approximately ~~$7.9~~$5.6 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017 and a source of cash of approximately $19.9 million~~2017. The decrease in inventory during the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2018 is due to the seasonality of our business. The increase in inventory ~~during~~levels in the ~~nine~~six months ended ~~September~~June 30, 2017 iswas due to efforts to maintain higher stock levels of our highest volume products on hand ~~as well as additional inventory built as safety stock in anticipation of projects being completed in the fourth quarter~~ in our Horizon Americas ~~reportable~~ segment. We also maintained lower levels of inventory in December 2016 in Horizon Americas in anticipation of the new ERP system going live. The inventory decline in 2016 is a result of the seasonality of our business.

Changes in accounts payable and accrued liabilities resulted in a source of cash of approximately $12.6 million during the six months ended June 30, 2018 and a use of cash of ~~approximately $17.4 million and $10.0~~$1.5 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016, respectively.~~2017. The ~~decrease~~increase in accounts payable and accrued liabilities during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 is primarily related to the ~~release~~timing of ~~liabilities related to certain unrecognized tax positions and decreases to certain compensation accruals primarily related to bonus payments, as well as a decrease in liabilities associated with~~purchases within the ~~acquisition of Westfalia from December 31, 2016. These decreases were partially offset by higher accounts payable related to maintaining higher inventory levels as described above.~~quarter. The use of cash for ~~nine~~the six months ended ~~September~~June 30, ~~2016~~2017 is primarily related to the timing of payments made to suppliers, mix of vendors and related terms, as well as decreases in certain compensation accruals primarily related to bonus ~~and severance~~ payments.

Cash Flows - Investing Activities

Net cash used for investing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 was approximately ~~$39.0~~$7.7 million and ~~$9.9~~$12.4 million, respectively. During the ~~third quarter of 2017, we acquired the assets of Best Bars for total cash consideration of $19.8 million. In addition, during the nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we invested approximately ~~$20.3~~$7.8 million in capital expenditures, as we have continued our investment in growth, capacity and productivity-related capital ~~projects, including several projects~~projects. During the six

months ended June 30, 2017, we incurred approximately $13.3 million in capital expenditures. The increased capital expenditures in 2017 were a result of increased capital activity in the newly acquired Westfalia Group. Cash received from the disposition of property and equipment was approximately $1.1 million primarily due to the sale of assets in Romania. During the nine months ended September 30, 2016, we incurred approximately $10.1 million in capital expenditures and received cash from the disposition of property and equipment of approximately $0.2 million resulting from the sale of assets in Brazil and South Africa.

Cash Flows - Financing Activities

Net cash provided by financing activities was approximately ~~$9.6~~$42.4 million and ~~$0.2~~$15.1 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. During the ~~nine~~six months ended ~~September~~June 30, 2018, net borrowings from our ABL Facility totaled $52.6 million, while we used cash of $6.0 million for repayments on our credit facilities and $3.9 million for repayments on our Term B Loan. During the first six months of 2017, we received proceeds of ~~$121.1~~$121.0 million from the issuance of our Convertible Notes, net of issuance costs; proceeds of $79.9 million from the issuance of common stock, net of offering costs; proceeds of $20.9 million from the issuance of ~~Warrants;~~Warrants, net of issuance costs; and ~~our~~ net borrowings from our ABL Facility totaled $20.0 million. WeAlso during the first half of 2017, we used cash of approximately ~~$187.8~~$185.8 million for repayments on our Term B Loan, as well as $29.7 million for the payments on Convertible Note Hedges, net of issuance costs, and approximately $10.0 million to repurchase shares as part of our Share Repurchase Program. During the nine months ended September 30, 2016, our net borrowings from our ABL Facility totaled $6.8 million. We also used net cash amount of approximately $7.5 million for repayments on our Term B Loan.costs.

Factoring Arrangements

We have factoring arrangements with financial institutions to sell certain accounts receivable under non-recourse agreements. Total receivables sold under the factoring arrangements ~~was~~were approximately ~~$23.9~~$135.9 million and $123.2 million as of ~~September~~June 30, ~~2017. The Company had no factoring arrangements for the nine months ended September 30, 2016.~~2018 and 2017, respectively. We utilize factoring arrangements as part of our financing for working capital. The costs of participating in these arrangements are immaterial to our results.

Our Debt and Other Commitments

We and certain of our subsidiaries are party to the ABL Facility, an asset-based revolving credit facility, that provides for $99.0 million of funding on a revolving basis, ~~as well as a Term B Loan under which we borrowed an aggregate of $352.0 million.~~subject to borrowing base availability. The ABL Facility matures in June 2020 and bears interest on outstanding balances at variable rates as outlined in the agreement. On June 30, 2015, we entered into a term loan agreement ~~while~~(the “Original Term B Loan”) under which we borrowed an aggregate amount of $200 million. On September 19, 2016, we entered into the First Amendment to the Original Term B Loan ~~matures~~(the “Term Loan Amendment”) which provided for incremental commitments in ~~June 2021 and bears interest at variable rates in accordance with the credit agreement.~~

~~During the first quarter of 2017, we completed~~ an ~~underwritten public offering of $125.0 million~~ aggregate principal amount of Convertible Notes. The Convertible Notes mature on July 1, 2022 unless earlier converted in accordance with the terms prior to such date, and bears interest at a rate of 2.75% per annum. We used net proceeds from the Convertible Notes offering, along with proceeds from the issuance of common stock, also completed in the first quarter of 2017, to prepay $177.0$152.0 million ~~of the~~(the “Incremental Term ~~B Loan. Additionally, on~~Loans”). On March 31, 2017, we entered into the Third Amendment to the ~~Term B Loan. This amendment allowed us to repay the existing~~ Original Term B Loan ~~and~~(the “Replacement Term Loan”), which amended the Term B Loan to provide for a new term loan commitment. On July 31, 2018, the Company entered into the Fourth Amendment to the Term B Loan (the “2018 Incremental Term ~~Loans and~~Loan”). The 2018 Incremental Term Loan provided for additional borrowings of $50.0 million that were used to pay outstanding balances under the ~~Replacement~~ABL Loan Agreement, pay fees and expenses in connection with the amendment and for general corporate purposes. Borrowings under the 2018 Incremental Term Loan ~~which reduced~~bear interest, at the ~~required principal payments by $2.7 million~~Company’s election, at either (i) the Base Rate plus 5.0% per ~~quarter and reduced the interest rate by 1.5%~~annum, or (ii) LIBOR, with a 1% floor, plus 6.0% per annum. Principal payments required under the 2018 Incremental Term Loan are $2.6 million due each calendar quarter beginning September 2018.

Refer to Note 7,8, “Long-term Debt,” in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” included within this quarterly report on Form 10-Q for additional information.

As of ~~September~~June 30, ~~2017,~~2018, approximately ~~$20.0~~$62.6 million was outstanding on the ABL Facility bearing interest at a weighted average rate of ~~3.2%~~3.9% and ~~$151.6~~$145.7 million was outstanding on the Term B Loan bearing interest at ~~5.7%~~6.6%. The Company had ~~$65.0~~$26.8 million in availability under the ABL Facility as of ~~September~~June 30, ~~2017.~~2018.

The agreements governing the ABL Facility and Term B Loan contain various negative and affirmative covenants and other requirements affecting us and our subsidiaries, including restrictions on incurrence of debt, liens, mergers, investments, loans, advances, guarantee obligations, acquisitions, asset dispositions, sale-leaseback transactions, hedging agreements, dividends and other restricted payments, transactions with affiliates, restrictive agreements and amendments to charters, bylaws, and other material documents. The ABL Facility does not include any financial maintenance covenants other than a springing minimum fixed charge coverage ratio of at least 1.00 to 1.00 on a trailing twelve-month basis, which will be tested only upon the occurrence of an event of default or certain other conditions as specified in the agreement. The Term B Loan contains customary negative covenants, and also contains a financial maintenance covenant which requires usthe Company to maintain a net leverage ratio not exceeding ~~5.25~~7.00 to 1.00 through the fiscal quarter ending ~~September 30, 2017, 5.00~~December 31, 2018, 6.50 to 1.00 through the fiscal quarter ending March 31, ~~2018,~~2019; 5.00 to 1.00 through the fiscal quarter ended June 30, 2019; 4.75 to 1.00 through the fiscal quarter ~~ending~~ended September 30, ~~2018;~~2019; and thereafter, 4.50 to 1.00. ~~As of September~~At June 30, ~~2017, we were~~2018, the Company was in compliance with ~~our~~its financial covenants ~~contained~~ in ~~the ABL Facility and~~ the Term B ~~Loan, respectively.~~

Loan.

On July 3, 2017, our Australia subsidiary entered into a new agreement to provide for revolving borrowings up to an aggregate amount of ~~$32.0~~$30.3 million. The agreement includes two sub-facilities: (i) Facility A has a borrowing capacity of ~~$20.3~~$19.2 million, matures on July 3, 2020, and is subject to interest at Bank Bill Swap ~~rate~~Bid Rate plus a margin determined based on the most recent net leverage ratio; (ii) Facility B has a borrowing capacity of ~~$11.7~~$11.1 million, matures on July 3, 2018 and is subject to interest at Bank Bill Swap ~~rate~~Bid Rate plus 0.9% per annum. Borrowings under this arrangement are subject to financial and reporting covenants. Financial covenants include maintaining 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; working capital coverage ratio (working capital over total debt) greater than 1.75 to 1.00 and a gearing ratio (senior debt to senior debt plus equity) not exceeding 50%. As of ~~September~~June 30, ~~2017~~2018 we were in compliance with all covenants.

We are subject to variable interest rates on our Term B Loan and ABL Facility. At ~~September~~June 30, ~~2017, 1-Month~~2018, one-Month LIBOR and ~~3-Month~~three-Month LIBOR approximated ~~1.23%~~2.09% and ~~1.33%~~2.34%, respectively.

Principal payments required under the Term B Loan are $1.9 million due each calendar quarter, with the remaining principal due on maturity, June 30, 2021. 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 term loans under the Term B Loan in an amount up to 50.0% of our excess cash flow for such fiscal year, as defined, subject to adjustments based on our leverage ratio and optional prepayments of term loans and certain other indebtedness.

In addition to our long-term debt, we have other cash commitments related to leases. We account for these lease transactions as operating leases and annual rent expense related thereto approximated ~~$16.8~~$20.0 million for the year ended December 31, ~~2016.~~2017. We expect to continue to utilize leasing as a financing strategy in the future to meet capital expenditure needs and to reduce debt levels.

The following is a reconciliation of net ~~income (loss),~~loss attributable to Horizon Global, as reported, which is a U.S. GAAP measure of our operating results, to Consolidated Bank EBITDA, as defined in our credit agreement, for the twelve months ended ~~September~~June 30, ~~2017.~~2018. We present Consolidated Bank EBITDA to show our performance under our financial covenants.


				Less:		Add:									Less:			Add:
	Year Ended December 31, 2016			Nine Months Ended September 30, 2016		Nine Months Ended September 30, 2017			Twelve Months Ended September 30, 2017			Year Ended December 31, 2017			Six Months Ended June 30, 2017			Six Months Ended June 30, 2018			Twelve Months Ended June 30, 2018
	(dollars in thousands)											(dollars in thousands)
Net income (loss) attributable to Horizon Global	$	(12,360	)	$	9,890	$	17,290		$	(4,960	)
Net loss attributable to Horizon Global												$	(3,550	)	$	10,400		$	(124,440	)	$	(138,390	)
Bank stipulated adjustments:
Interest expense, net (as defined)	20,080			12,600		16,650			24,130			22,410			11,110			17,270			28,570
Income tax (benefit) expense	(3,730		)	900		(3,350		)	(7,980		)	9,750			(3,230		)	(12,360		)	620
Depreciation and amortization	18,220			12,970		17,940			23,190			25,340			11,470			12,380			26,250
Extraordinary charges	6,830			4,120		—			2,710			2,520			—			13,740			16,260
Non-cash compensation expense^(a)	3,860			2,840		2,760			3,780			3,630			1,830			1,210			3,010
Other non-cash expenses or losses	16,460			3,410		1,050			14,100			2,180			480			99,620			101,320
Pro forma EBITDA of permitted acquisition	13,910			13,910		1,090			1,090			840			840			—			—
Interest-equivalent costs associated with any Specified Vendor Receivables Financing	1,200			940		960			1,220			1,490			620			810			1,680
Debt extinguishment costs	—			—		4,640			4,640			4,640			4,640			—			—
Items limited to 25% of consolidated EBITDA:
Items limited to a % of consolidated EBITDA^(b):
Non-recurring expenses ^(b)(c)	4,190			4,860		1,310			640			2,440			—			6,240			8,680
Acquisition integration costs ^(c)(d)	4,290			—		8,230			12,520			11,210			5,580			3,140			8,770
Synergies related to permitted acquisition ^(d)(e)	12,500			—		(8,330		)	4,170			1,480			1,480			—			—
EBITDA limitation for non-recurring expenses ^(e)	(4,860		)	—		2,620			(2,240		)
Consolidated Bank EBITDA, as defined	$	80,590		$	66,440	$	62,860		$	77,010		$	84,380		$	45,220		$	17,610		$	56,770


	September 30, 2017			June 30, 2018
	(dollars in thousands)			(dollars in thousands)
Total Consolidated Indebtedness, as defined	$	278,330		$	323,256
Consolidated Bank EBITDA, as defined	77,010			56,770
Actual leverage ratio	3.61		x	5.69		x
Covenant requirement	5.25		x	7.00		x

______________________


(a)	Non-cash compensation expenses resulting from the grant of restricted units of common stock and common stock options.

(b)

Under ~~our credit agreement,~~the Fourth Amendment, the EBITDA limitation for nonrecurring expenses or costs was increased from 25% of Consolidated EBITDA for the period to 45% of Consolidated EBITDA for the period; provided further that such percentage shall be (i) 35% of Consolidated EBITDA on September 30, 2019 and (ii) 25% of Consolidated EBITDA on December 31, 2018 and thereafter. As such, the amounts added to Consolidated Net Income pursuant to items b-d shall not exceed 45% of Consolidated EBITDA, excluding these items, for such period.


(c)	Under the Amended Term Loan Agreement, cost and expenses related to cost savings projects, including restructuring and severance expenses, are not to exceed $5 million in any fiscal year and $20 million in aggregate, commencing on or after January 1, 2015. The Fourth Amendment has raised the annual cap to $7.5 million in any fiscal year and $25 million in aggregate.


~~(c)~~(d)	Under ~~our credit agreement,~~the 2018 Term Loan Agreement, costs and expenses related to the integration of the Westfalia Group acquisition are not to exceed $10 million in any fiscal year and $30 million in aggregate, or other permitted acquisitions are not to exceed $7.5 million in any fiscal year and $20 million in aggregate.


~~(d)~~(e)	Under ~~our credit agreement,~~the 2018 Term Loan Agreement, the add back for the amount of reasonably identifiable and factually supportable “run rate” cost savings, operating expense reductions, and other synergies cannot exceed $12.5 million for the Westfalia Group acquisition.


~~(e)~~	~~The amounts added to Consolidated Net Income pursuant to items in notes (b)-(d) shall not exceed 25% of Consolidated EBITDA, excluding these items, for such period.~~

Refer to Note 7,8, “Long-term Debt,” in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” included within this quarterly report on Form 10-Q for additional information.

The leverage ratios as of March 31, 2017 and June 30, 2017 were calculated based upon the U.S. GAAP definition of debt for our previously disclosed Convertible Note issuance during the first quarter of 2017. Based on discussions with the administrative agent under our credit agreement, the leverage ratio will be presented based on a U.S. GAAP exception outlined in the credit agreement, which provides our investors and lenders a clearer view of our total leverage position. Based upon this U.S. GAAP exception, our leverage ratio would have been 4.37x and 3.86x as of March 31, 2017 and June 30, 2017, respectively. The restated ratios are still in compliance with our covenant level of 5.25x for each quarter.

Credit Rating

We and certain of our outstanding debt obligations are rated by Standard & Poor’s and Moody’s. On ~~January 30, 2017,~~June 20, 2018, Moody’s ~~upgraded our prior~~issued a rating of B2 ~~to B1~~ for our ~~$146~~$160 million ~~($352 million at time~~senior secured term loan and a rating of ~~rating, including the $152 million add-on) Term B Loan, as presented in Note 7,~~ ~~“Long-term Debt”~~ ~~included in Part I, Item I,~~ ~~“Notes to Condensed Consolidated Financial Statements”~~ ~~within this quarterly report on Form 10-Q. Moody’s also maintained a B2 to~~B3 for our corporate family ~~rating and our outlook as stable.~~rating. Moody’s also assigned the Company a negative outlook. On ~~January 26, 2017,~~July 17, 2018, Standard & Poor’s ~~raised its~~issued a rating of CCC for our $160 million senior secured term loan, a rating of CCC for our corporate credit rating ~~from B to B+~~and a rating of CCC- for our ~~$146 million ($352 million at the time of the rating, including the $152 million add-on) senior secured term loan.~~Convertible Notes. Standard & Poor’s also ~~maintained our B corporate credit rating and outlook as stable, while assigning~~assigned the Company a ~~B- rating to our then proposed (at time of rating) Convertible Notes.~~developing outlook. If our credit ratings were to decline, our ability to access certain financial markets may become limited, our cost of borrowings may increase, the perception of us in the view of our customers, suppliers and security holders may worsen and as a result, we may be adversely affected.

Market Risk

We conduct business in various locations throughout the world and are subject to market risk due to changes in the value of foreign currencies. The functional currencies of our foreign subsidiaries are primarily the local currency in the country of domicile. We manage these operating activities at the local level and revenues and costs are generally denominated in local currencies; however, results of operations and assets and liabilities reported in U.S. dollars will fluctuate with changes in exchange rates between such local currencies and the U.S. dollar.

We use derivative financial instruments to manage currency risks associated with our procurement activities denominated in currencies other than the functional currency of our subsidiaries and the impact of currency rate volatility on our earnings. As of ~~September~~June 30, ~~2017~~2018, we were party to forward contracts and cross currency swaps, to hedge changes in foreign currency exchange rates, with notional amounts of approximately ~~$17.2~~$26.1 million and ~~$123.6~~$116.8 million, respectively. See Note 8,9, “Derivative Instruments,” included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” within this quarterly report on Form 10-Q.

We are also subject to interest risk as it relates to our long-term debt. We may in the future use interest rate swap agreements to fix the variable portion of our debt to manage this risk.

Outlook

Our global business remains susceptible to economic conditions that could adversely affect our results. In the near-term, the economies that most significantly affect our demand, including the United States, European Union, and Australia, are expected to continue to grow. The impact ~~our business. While~~of tax reform in the U.S. and Asia-Pacific economies impacting our demand remain strong, and the European economy shows indications of improvement, global economic sentiment remains cautious given continued geopolitical uncertainty and foreign currency volatility. Additionally, weshould continue to ~~evaluate~~drive growth in the near-term; however, the longer-term implications of tax reform on economic growth are not yet fully understood. We continue to monitor the trade ~~and tax~~ policy discussions taking place in Washington, D.C. and the impact ~~the ultimate legislation~~any changes could have on our ~~current~~ operations. If geopolitical tensions, particularly in East Asia, escalate, it may affect global consumer sentiment affecting the expected economic growth in the near-term.

In 2017, we began experiencing performance issues including: manufacturing inefficiencies in our Reynosa, Mexico manufacturing facility, as well as startup inefficiencies in both our new Kansas City distribution facility in the Americas segment and our Romanian manufacturing facility in the Europe-Africa segment. In response to these challenges, we made organizational changes, enlisted the assistance of manufacturing consultants, and identified additional cost reduction projects, including the closure of two non-manufacturing facilities in our Americas segment. We are focused on executing the targeted action plan we have publicly communicated, with many of the projects identified in the Americas nearing completion. While we expect the new leadership in Europe-Africa to enhance the focus on operational improvements, progress is expected to take longer to realize in this segment. In the short-term, the costs associated with executing these initiatives, including severance, unrecoverable lease obligations, and professional service fees, may affect our results and cash flows.

We believe the unique global footprint we enjoy in our market space will ~~continue to~~ benefit us as our OE customers continue to demonstrate a preference for stronger relationships with few suppliers. ~~Additionally, while we~~We believe that ~~the continued consolidation in aftermarket distribution presents long-term opportunities for us given~~ our strong brand positions, portfolio of product offerings, and existing customer relationships present a long-term opportunity for us.

While a strong global economy offers opportunities for growth and cost leverage, we are committed to delivering on our ~~results of operations may be impacted by the closure and consolidation of customer warehouses in the short term.~~

~~We attempt~~internal projects to ~~mitigate challenging external factors by executing productivity projects across our businesses which we believe will~~ drive ~~future~~ margin ~~expansion, including leveraging recent investments made to expand our European manufacturing footprint, global customer relationships and global manufacturing and distribution capabilities.~~improvement. We believe ~~these initiatives~~our internal projects, if executed well, will ~~carry through 2017 and beyond and enhance~~have a positive impact on our margins ~~and business portfolio over time.~~in future periods.

Our strategic priorities are to improve margins, reduce our leverage, and drive top line growth.

Impact of New Accounting Standards

See Note 2, “New Accounting Pronouncements,” included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” within this quarterly report on Form 10-Q.

Critical Accounting Policies

Our financial statements are prepared in accordance with U.S. GAAP. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates that affect both the amounts and timing of the recording of assets, liabilities, net sales and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, our evaluation of business and macroeconomic trends, and information from other outside sources, as appropriate.

During the first quarter ~~ended~~of 2018, the Company adopted the provisions of Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers (Topic 606)”. Refer to Note 2, ~~September 30, 2017~~“New Accounting Pronouncements”, and Note 3, “Revenues” in Part I, Item 1, “Notes to the Condensed Consolidated Financial Statements,” included within this quarterly report on Form 10-Q, related to the impact of the adoption on the Company’s financial statements and accounting policies.

Except for accounting policies related to our adoption of ASC 606 in 2018, there were no material changes to the items that we disclosed as our critical accounting policies in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Emerging Growth Company

The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, establishes a class of company called an “emerging growth company,” which generally is a company whose initial public offering was completed after December 8, 2011 and had total annual gross revenues of less than $1$1.07 billion during its most recently completed fiscal year. We currently qualify as an emerging growth company.

As an emerging growth company, we are eligible to take advantage of certain exemptions from various reporting requirements that are not available to public reporting companies that do not qualify for this classification, including without limitation the following:


▪	An emerging growth company is exempt from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and financial statements, commonly known as an “auditor discussion and analysis.”


▪	An emerging growth company is not required to hold a nonbinding advisory stockholder vote on executive compensation or any golden parachute payments not previously approved by stockholders.


▪	An emerging growth company is not required to comply with the requirement of auditor attestation of management’s assessment of internal control over financial reporting, which is required for other public reporting companies by Section 404 of the Sarbanes-Oxley Act.


▪	An emerging growth company is eligible for reduced disclosure obligations regarding executive compensation in its periodic and annual reports, including without limitation exemption from the requirement to provide a compensation discussion and analysis describing compensation practices and procedures.


▪	A company that is an emerging growth company is eligible for reduced financial statement disclosure in registration statements, which must include two years of audited financial statements rather than the three years of audited financial statements that are required for other public reporting companies.

For as long as we continue to be an emerging growth company, we expect that we will take advantage of the reduced disclosure obligations available to us as a result of this classification. We will remain an emerging growth company until the earlier of (i) December 31, 2020, the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act; (ii) the last day of the fiscal year in which we have total annual gross revenues of $1$1.07 billion (subject to further adjustment for inflation) or more; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under applicable SEC rules. We expect that we will remain an emerging growth company for the foreseeable future, but cannot retain our emerging growth company status indefinitely and will no longer qualify as an emerging growth company on or before December 31, 2020.

Emerging growth companies may elect to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to “opt out” of such extended transition period, and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for companies that are not “emerging growth companies.” Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business, we are exposed to market risk associated with fluctuations in interest rates, commodity prices, insurable risks due to property damage, employee and liability claims, and other uncertainties in the financial and credit markets, which may impact demand for our products.

2018 and 2017, respectively.

We are exposed to market risk from changes in the interest rates on a significant portion of our outstanding debt. Outstanding balances under our Term B Loan, at the Company’s election, bear interest at variable rates based on a margin over defined LIBOR. Based on the amount outstanding on the Term B Loan as of ~~September~~June 30, 2018 and 2017, a 100 basis point change in LIBOR would result in an approximate $1.5 million ~~change~~increase, respectively, to our annual interest expense.

We use derivative financial instruments to manage our currency risks. We are also subject to interest risk as it relates to long-term debt. See Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for details about our primary market risks, and the objectives and strategies used to manage these risks. Also see Note 78, “Long-term Debt,” and Note 89, “Derivative Instruments,” in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” included within this quarterly report on Form 10-Q for additional information.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Interim Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Evaluation of disclosure controls and procedures

As of ~~September~~June 30, ~~2017,~~2018, an evaluation was carried out by management, with the participation of the Interim Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) pursuant to Rule 13a-15 of the Exchange Act. The Company’s disclosure controls and procedures are designed only to provide reasonable assurance that they will meet their objectives. Based upon that evaluation, the Interim Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September~~June 30, ~~2017,~~2018, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that they would meet their objectives.

Changes in internal control over financial reporting

~~During~~Beginning January 1, 2018, the Company implemented ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09” or “Topic 606”). Although Topic 606 is expected to have an immaterial impact on the Company’s ~~most recent fiscal quarter, there have been~~ongoing net income (loss), the Company did modify and add new controls designed to address risks associated with recognizing revenue under the new standard. The Company has therefore augmented internal control over financial reporting as follows:


▪	Enhanced the risk assessment process to take into account risks associated with the new revenue recognition standard.


▪	Added controls that address risks associated with the five-step model for recording revenue, including the revision of the Company’s contract review controls.

There were no other changes in the Company’s internal control over financial reporting that ~~have~~occurred during the fiscal quarter ended June 30, 2018, that has materially affected, or ~~are~~is reasonably likely to materially affect, ~~the Company’s~~its internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to claims and litigation in the ordinary course of business, but we do not believe that any such claim or litigation is likely to have a material adverse effect on our financial position and results of operations or cash flows.

Item 1A. Risk Factors

A discussion of our risk factors can be found in the section entitled “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, ~~2016. The information below includes additional risks relating to our issuance of Convertible Notes and our transactions in Convertible Note Hedges and Warrants. The risks described below~~2017, which could materially affect our business, financial condition or future results.

~~The conditional conversion features of our 2.75% Convertible Senior Notes due 2022, 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 and warrant transactions that we entered into in connection with the offering of the Convertible Senior Notes due 2022 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 There 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.

~~We are subject to counterparty risk with respect to the convertible note hedge transactions.~~

Each option counterparty to the Convertible Note Hedges is a financial institution, and we will be subject to the risk that it might default under the Convertible Note Hedges. Our exposure to the credit risk of an option counterparty will not be secured by any collateral. Global economic conditions have from time to time resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under our transactions with the option counterparty. Our exposure will depend on many factors but, generally, the increasebeen no significant changes in our ~~exposure will be correlated to the increase~~risk factors as disclosed in ~~the market price and in the volatility of~~ our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of any option counterparty.2017 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In April 2017, the Board of Directors authorized the Share Repurchase Program, which provides for the purchase of up to 1.5 million shares of the Company’s issued and outstanding common stock. The Share Repurchase Program provides for share purchases in the open market or otherwise, including pursuant to Rule 10b5-1 plans, depending on share price, market conditions and other

factors, as determined by the Company. Total shares purchased as of September 30, 2017 through the Share Repurchase Program were 686,506 at a total cost of $10.0 million for an average purchase price per share of $14.55, excluding commissions.

The Company’s purchases of its shares of common stock during the ~~third~~second quarter of ~~2017~~2018 were as follows:

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs ^(a)
July 1 - 31, 2017 116,141
$ 14.09
116,141
813,494
August 1 - 31, 2017 —
—
813,494
September 1 - 30, 2017 —
—
813,494
Total 116,141
$ 14.09
116,141



Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs ^(a)
April 1 - 30, 2018	—		—	813,494
May 1 - 31, 2018	—		—	813,494
June 1 - 30, 2018	—		—	813,494
Total	—		—

__________________________

^(a) OnThe Company has a share repurchase program that was announced in May 3, 2017 ~~the Company announced that its Board of Directors had approved the Share Repurchase Program. The Share Repurchase Program allows the Company~~ to ~~repurchase~~purchase up to 1.5 million shares of ~~its~~the Company’s common stock. At the end of the second quarter of 2018, 813,494 shares of common stock remains to be purchased under this program. The ~~Share Repurchase Program~~share repurchase program expires on May 5, 2020.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits.

Exhibits Index:



~~3.1(b)~~3.1	Amended and Restated Certificate of Incorporation of Horizon Global ~~Corporation.~~Corporation, as amended.
3.2(a)	Amended and Restated By-laws of Horizon Global Corporation.
10.1	Form of Restricted Stock Units Agreement - Board of Directors Grant - under the Amended and Restated 2015 Equity and Incentive Compensation Plan.
10.2	Separation Agreement between Horizon Global Corporation and A. Mark Zeffiro dated June 29, 2018.
10.3	Fourth Amendment to Credit Agreement, dated as of July 31, 2018, to the Term Loan Credit Agreement, dated as of June 30, 2015, by and among Horizon Global Corporation, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
10.4	Third Amendment to Amended and Restated Loan Agreement, dated as of July 31, 2018, to the Amended and Restated Loan Agreement, dated as of December 22, 2015, by and among Horizon Global Corporation, Horizon Global Americas Inc., Cequent UK Limited, Cequent Towing Products of Canada Ltd., the other parties thereto, the lenders party thereto and Bank of America, N.A., as administrative agent.
31.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.



(a)		Incorporated by reference to the ~~Exhibits~~Exhibit filed with our ~~Registration Statement on Form S-1/A filed on June 11, 2015 (Reg. No. 333-203138).~~
~~(b)~~		~~Incorporated by reference to the Exhibits filed with our Quarterly~~Current Report on Form ~~10-Q~~8-K filed on ~~August 11, 2015~~March 12, 2018 (File No. 001-37427).

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		HORIZON GLOBAL CORPORATION (Registrant)

			/s/ DAVID G. RICE

Date:	~~October 31, 2017~~August 7, 2018	By:	David G. Rice Chief Financial Officer

~~Exhibits Index:~~



~~3.1(b)~~	~~Amended and Restated Certificate of Incorporation of Horizon Global Corporation.~~
~~3.2(a)~~	~~Amended and Restated By-laws of Horizon Global Corporation.~~
~~31.1~~	~~Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
~~31.2~~	~~Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
~~32.1~~	~~Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
~~32.2~~	~~Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
~~101.INS~~	~~XBRL Instance Document.~~
~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document.~~
~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document.~~
~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document.~~
~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document.~~
~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document.~~



~~(a)~~		~~Incorporated by reference to the Exhibits filed with our Registration Statement on Form S-1/A filed on June 11, 2015 (Reg. No. 333-203138).~~
~~(b)~~		~~Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on August 11, 2015 (File No. 001-37427).~~



	Acquisition Date
	(dollars in thousands)
Consideration
Cash paid	$	19,800

Recognized amounts of identifiable assets acquired and liabilities assumed
Receivables, net	2,100
Inventories	2,340
Other intangibles, net	7,690
Prepaid expenses and other current assets	110
Property and equipment, net	2,250
Accounts payable and accrued liabilities	1,680
Total identifiable net assets	12,810
Goodwill	6,990
	$	19,800