10-K 1 hy201810k.htm 10-K Document


 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
 
 
x
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the fiscal year ended December 31, 2018
or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 000-54799
HYSTER-YALE MATERIALS HANDLING, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
 
31-1637659
(I.R.S. Employer Identification No.)
 
 
 
5875 Landerbrook Drive, Suite 300, Cleveland, Ohio
(Address of principal executive offices)
 
44124-4069
(Zip Code)
Registrant's telephone number, including area code: (440) 449-9600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Class A Common Stock, Par Value $0.01 Per Share
 
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock, Par Value $0.01 Per Share
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.         YES x    NO o     
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     YES o     NO x 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES x     NO o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES x     NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or 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 þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
Emerging growth company o
 
 
 
 
(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. 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
     
Aggregate market value of Class A Common Stock and Class B Common Stock held by non-affiliates as of June 30, 2018 (the last business day of the registrant's most recently completed second fiscal quarter): $719,253,114
Number of shares of Class A Common Stock outstanding at February 22, 2019: 12,688,937
Number of shares of Class B Common Stock outstanding at February 22, 2019: 3,876,941
DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Proxy Statement for its 2019 annual meeting of stockholders are incorporated herein by reference in Part III of this Form 10-K.

 
 
 
 
 



HYSTER-YALE MATERIALS HANDLING, INC.
TABLE OF CONTENTS
 
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I
Item 1. BUSINESS
General

Hyster-Yale Materials Handling, Inc. ("Hyster-Yale" or the "Company") and its subsidiaries, including its operating company Hyster-Yale Group, Inc. ("HYG"), is a leading, globally integrated, full-line lift truck manufacturer. The Company offers a broad array of solutions aimed at meeting the specific materials handling needs of its customers, including attachments and hydrogen fuel cell power products, telematics, automation and fleet management services, as well as a variety of other power options for its lift trucks. The Company, headquartered in Cleveland, Ohio, through HYG, designs, engineers, manufactures, sells and services a comprehensive line of lift trucks, attachments and aftermarket parts marketed globally primarily under the Hyster® and Yale® brand names, mainly to independent Hyster® and Yale® retail dealerships. Lift trucks and component parts are manufactured in the United States, China, Northern Ireland, Mexico, the Netherlands, the Philippines, Italy, Vietnam, Japan and Brazil. Hyster-Yale was incorporated as a Delaware corporation in 1999.

The Company operates Bolzoni S.p.A. ("Bolzoni"). Bolzoni is a leading worldwide producer and distributor of attachments, forks and lift tables marketed under the Bolzoni®, Auramo® and Meyer® brand names. Bolzoni products are manufactured in Italy, China, Germany, Finland and the United States. Through the design, production and distribution of a wide range of attachments, Bolzoni has a strong presence in the market niche of lift-truck attachments and industrial material handling.

In 2018, the Company announced, as part of a plan to expand Bolzoni's capabilities in the United States, Bolzoni's North America attachment manufacturing will be moved into HYG's Sulligent, Alabama manufacturing facility over the course of 2019. As a result, effective January 1, 2019, the Sulligent facility became a Bolzoni facility. As of December 31, 2018, the Sulligent facility has been included in the lift truck operations within this Annual Report on Form 10-K. The Company will reclassify the historical results of the Sulligent facility for 2019 reporting beginning with the first quarter 2019 Form 10-Q.

The Company operates Nuvera Fuel Cells, LLC ("Nuvera"). Nuvera is an alternative-power technology company focused on hydrogen fuel cell stacks and engines.

On June 1, 2018, the Company completed the acquisition of the majority interest in Zhejiang Maximal Forklift Co., Ltd. ("Maximal"). Maximal is a Chinese manufacturer of utility and standard lift trucks and specialized material handling equipment involved in the design, manufacture, service and distribution of Class 1 electric and Class 5 internal combustion engine counterbalance utility and standard platforms, and Class 2 and Class 3 electric warehouse products for both the local China and global markets under the Maximal brand. Maximal also designs and produces specialized products in the port equipment and rough terrain forklift markets. The results of Maximal are included in the JAPIC segment since the date of acquisition.

The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports available, free of charge, through its website, www.hyster-yale.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission ("SEC").

Manufacturing and Assembly
The Company manufactures components, such as frames, masts and transmissions, and assembles lift trucks in the market of sale whenever practical to minimize freight cost and balance currency mix. In some instances, however, it utilizes one worldwide location to manufacture specific components or assemble specific lift trucks. Additionally, components and assembled lift trucks are exported when it is advantageous to meet demand in certain markets. The Company operates thirteen lift truck manufacturing and assembly facilities worldwide with five plants in the Americas, three in EMEA and five in JAPIC, including joint venture operations. In addition, the Company operates seven Bolzoni manufacturing facilities worldwide.
Sales of lift trucks represented approximately 77% of the Company’s annual revenues in 2018 (approximately 49% internal combustion engine units and approximately 28% electric units), and 77% in 2017 and 2016, respectively. Service, rental and other revenues were approximately 4% in 2018, 5% in 2017 and 6% in 2016. Bolzoni's revenues were approximately 5% in 2018 and 2017 and 4% in 2016. Nuvera's revenues were approximately 1% in 2018.
During 2018, the Company’s retail shipments of lift trucks in North America by end market were approximately 22% to the food and beverage market, approximately 15% to the logistics market, approximately 13% to the natural resource and materials market, approximately 13% to the consumer and business trade market, approximately 13% to the manufacturing market, approximately 13% to the rental market and approximately 11% to the durable goods market.

1


Aftermarket Parts
The Company offers a line of aftermarket parts to service its large installed base of lift trucks currently in use in the industry. The Company offers online technical reference databases specifying the required aftermarket parts to service lift trucks and an aftermarket parts ordering system. Aftermarket parts sales represented approximately 13% of the Company’s annual revenues in each of 2018, 2017 and 2016.

The Company sells Hyster®- and Yale®-branded aftermarket parts to dealers for Hyster® and Yale® lift trucks. The Company also sells aftermarket parts under the UNISOURCE™ and PREMIER™ brands to Hyster® and Yale® dealers for the service of competitor lift trucks. The Company has a contractual relationship with a third-party, multi-brand, aftermarket parts wholesaler in the Americas and EMEA whereby orders from the Company's dealers for parts for lift trucks are fulfilled by the third party who then pays the Company a commission.
Marketing
The Company’s marketing organization is structured in three regional divisions by industry focus: the Americas; EMEA, which includes Europe, the Middle East and Africa; and JAPIC, which includes Japan, Asia, Pacific, India and China. In each region, certain marketing support functions for the Hyster® and Yale® brands are carried out by shared-services teams. These activities include sales and service training, information systems support, product launch coordination, specialized sales material development, help desks, order entry, marketing strategy and field service support.
Patents, Trademarks and Licenses
The Company relies on a combination of trade secret protection, trademarks, copyrights, and patents to establish and protect the Company's proprietary rights. These intellectual property rights may not have commercial value or may not be sufficiently broad to protect the aspect of the Company's technology to which they relate or competitors may design around the patents. The Company is not materially dependent upon patents or patent protection; however, as materials handling equipment has become more technologically advanced, the Company and its competitors have increasingly sought patent protection for inventions incorporated into their respective products. The Company owns the Hyster®,Yale®, Maximal®, Bolzoni Auramo®, Meyer® and Nuvera® trademarks and believes these trademarks are material to its business.
Distribution Network
The Company distributes lift trucks and attachments primarily through two channels: independent dealers and a National Accounts program. In addition, the Company distributes aftermarket parts and service for its lift trucks through its independent dealers. The Company’s end-user base is diverse and fragmented, including, among others, light and heavy manufacturers, trucking and automotive companies, rental companies, building materials and paper suppliers, lumber, metal products, warehouses, retailers, food distributors, container handling companies and U.S. and non-U.S. governmental agencies.
Independent Dealers
The Company’s dealers, located in 129 countries, are generally independently owned and operated. As of December 31, 2018, Hyster® had 13 independent dealers and Yale® had 28 independent dealers in the Americas. Hyster® had 69 independent dealers and Yale® had 90 independent dealers in EMEA and Hyster® had 51 independent dealers and Yale® had 8 independent dealers in JAPIC. In addition, as of December 31, 2018, the Company had 30 dual-branded dealers in the Americas, five in EMEA and five in JAPIC. As of December 31, 2018, the Company had 109 Maximal® dealers primarily in JAPIC.
National Accounts
The Company operates a National Accounts program for both Hyster® and Yale®. The National Accounts program focuses on large customers with centralized purchasing and geographically dispersed operations in multiple dealer territories. The National Accounts program accounted for 16%, 17% and 17% of new lift truck unit volume in 2018, 2017 and 2016, respectively. The independent dealers support the National Accounts program by providing aftermarket parts and service on a local basis. Dealers receive a commission for the support they provide in connection with National Accounts sales and for the preparation and delivery of lift trucks to customer locations. In addition to selling new lift trucks, the National Accounts program markets services, including full maintenance leases and fleet management.
Financing of Sales
The Company is engaged in a joint venture with Wells Fargo Financial Leasing, Inc. ("WF") to provide dealer and customer financing of new lift trucks in the United States. The Company owns 20% of the joint venture entity, HYG Financial Services, Inc. ("HYGFS"), and receives fees and remarketing profits under a joint venture agreement. This agreement has an initial term

2


through December 2023 and automatically renews for additional one-year terms unless written notice is given by either party at least 180 days prior to termination. The Company accounts for its ownership of HYGFS using the equity method of accounting.
Under the joint venture agreement with HYGFS, the Company’s dealers and certain customers are extended credit for the purchase of lift trucks to be placed in the dealer’s floor plan inventory or the financing of lift trucks that are sold or leased to customers. For some of these arrangements, the Company provides recourse or repurchase obligations to HYGFS or to others. In substantially all of these transactions, a perfected security interest is maintained in the lift trucks financed, so that in the event of a default, the Company has the ability to take title to the assets financed and sell it through the Hyster® or Yale® dealer network. Furthermore, the Company has established reserves for exposures under these agreements when required. In addition, the Company has an agreement with WF to limit its exposure to losses at certain eligible dealers. Under this agreement, losses related to guarantees for these certain eligible dealers are limited to 7.5% of their original loan balance. See Notes 18 and 19 to the Consolidated Financial Statements in this Annual Report on Form 10-K for further discussion.
Backlog
The following table outlines the Company's backlog of unfilled orders placed with its manufacturing and assembly operations for new lift trucks:
 
 
December 31, 2018
 
September 30, 2018
 
December 31, 2017
Units (in thousands)
 
43.9

 
42.3

 
33.8

Backlog, approximate sales value (in millions)
 
$
1,190

 
$
1,090

 
$
860

As of December 31, 2018, the Company expects substantially all of its backlog of unfilled orders placed with its manufacturing and assembly operations for new lift trucks to be sold during fiscal 2019. Backlog represents unfilled lift truck orders placed with the Company’s manufacturing and assembly facilities from dealers and National Account customers. In general, unfilled orders may be canceled at any time prior to the time of sale; however, the Company can assess cancellation penalties on dealer orders within a certain period prior to initiating production. The dollar value of backlog is calculated using the current unit backlog and the forecasted average sales price per unit.
Key Suppliers and Raw Materials
At times, the Company has experienced significant increases in material costs, primarily as a result of global price increases in industrial metals, including steel, lead and copper and other commodity products, such as rubber, as a result of increased demand and limited supply. While the Company attempts to pass these increased costs along to its customers in the form of higher prices for its products, it may not be able to fully offset the increased costs of industrial metals and other commodities, due to overall market conditions and the lag time involved in implementing price increases for its products.
A significant raw material required by the Company's manufacturing operations is steel, which is generally purchased from steel producing companies in the geographic area near each of the Company's manufacturing facilities. Other significant components for the Company's lift trucks are engines, axles, brakes, transmissions, batteries and chargers. These components are available from numerous sources in quantities sufficient to meet the Company's requirements. The Company depends on a limited number of suppliers for some of the Company's crucial components, including diesel and gasoline engines, which are supplied by, among others, Power Solutions International, Inc., Kubota Corp., and Cummins Inc., drive-system components, which are supplied by, among others, Dana Corporation and ZF Company, and cast-iron counterweights used to counter balance some lift trucks, which are obtained from, among others, North Vernon Industry Corp. and Eagle Quest International Ltd. Some of these critical components are imported and subject to regulations, such as customary inspection by the U.S. Customs and Border Protection under the auspices of the U.S. Department of Homeland Security, as well as the Company's own internal controls and security procedures.
Competition
The Company is one of the leaders in the lift truck industry with respect to market share in the Americas and worldwide. Competition in the materials handling industry is intense and is based primarily on strength and quality of distribution, brand loyalty, customer service, new lift truck sales prices, availability of products and aftermarket parts, comprehensive product line offerings, product performance, product quality and features and the cost of ownership over the life of the lift truck. The Company competes with several global lift truck manufacturers that operate in all major markets, as well as other niche companies. The lift truck industry also competes with alternative methods of materials handling, including conveyor systems and automated guided vehicles and systems. The Company's aftermarket parts offerings compete with parts manufactured by other lift truck manufacturers, as well as companies that focus solely on the sale of generic parts.


3


The use of fuel-cell technology in industrial and commercial applications is a relatively new development. Companies implementing such technology face competitors that integrate more traditional energy technologies into their product lines, as well as competitors that have implemented or are implementing alternatives to traditional energy technologies, such as lithium batteries, fuel additives and other high efficiency or “renewable” technologies.
Cyclical Nature of Lift Truck Business
The Company’s lift truck business historically has been cyclical. Fluctuations in the rate of orders for lift trucks, attachments and fuel-cell technology reflect the capital investment decisions of the Company’s customers, which depend to a certain extent on the general level of economic activity in the various industries the lift truck customers serve. During economic downturns, customers tend to delay new lift truck and parts purchases. Consequently, the Company has experienced, and in the future may continue to experience, significant fluctuations in its revenues and net income.
Research and Development
The Company’s lift truck research and development capability is organized around four major engineering centers, all coordinated on a global basis by the Company’s global executive administrative center. Products are designed for each brand concurrently and generally each center is focused on the global requirements for a single product line. The Company’s counterbalanced development center, which has global design responsibility for several classes of lift trucks for a highly diverse customer base, is located in Fairview, Oregon. The Company’s big truck development center is located in Nijmegen, the Netherlands, adjacent to a dedicated global big truck assembly facility. Big trucks are primarily used in handling shipping containers and other specialized heavy lifting applications, including steel, concrete and energy-related industries. Warehouse trucks, which are primarily used in distribution applications, are designed based on regional differences in stacking and storage practices. The Company designs warehouse equipment for sale in the Americas market in Greenville, North Carolina, adjacent to the Americas manufacturing and assembly facility. The Company designs warehouse equipment for the European market in Masate, Italy adjacent to its manufacturing and assembly facility for warehouse equipment. The Company also has an engineering Concept Center in the United Kingdom to support advanced design activities and an engineering office in India to support its global design activities for its four major engineering centers.
The Company’s lift truck engineering centers utilize a three-dimensional CAD/CAM system and are interconnected, with each of the Company’s manufacturing and assembly facilities and certain suppliers. This allows for collaboration in technical engineering designs and collaboration with these suppliers. Additionally, the Company solicits customer feedback throughout the design phase to improve product development efforts.

Development and innovation of attachments occurs in each of the Bolzoni manufacturing plants for the specific products produced in that location.
Nuvera has two research and development locations. In the U.S., Billerica, Massachusetts is the primary location for design, development and testing of fuel-cell stacks and engines. In Europe, the operations at San Donato, Italy are primarily focused on fuel-cell systems integration and testing.
Sumitomo-NACCO Joint Venture
The Company has a 50% ownership interest in Sumitomo NACCO Forklift Co., Ltd. ("SN"), a limited liability company that was formed in 1970 primarily to manufacture and distribute Sumitomo-branded lift trucks in Japan and export Hyster®- and Yale®-branded lift trucks and related components and service parts outside of Japan. Sumitomo Heavy Industries, Ltd. owns the remaining 50% interest in SN. Each stockholder of SN is entitled to appoint directors representing 50% of the vote of SN’s board of directors. All matters related to policies and programs of operation, manufacturing and sales activities require mutual agreement between the Company and Sumitomo Heavy Industries, Ltd. prior to a vote of SN’s board of directors. As a result, the Company accounts for its ownership in SN using the equity method of accounting. The Company purchases Hyster®- and Yale®-branded lift trucks and related component and aftermarket parts from SN for sale outside of Japan under agreed-upon terms. The Company also contracts with SN for engineering design services on a cost plus basis and charges SN for technology used by SN but developed by the Company. During 2018, SN sold approximately 7,100 lift trucks.
Employees
As of January 31, 2019, the Company had approximately 7,800 employees. Certain employees in the Danville, Illinois parts depot operations are unionized. The Company’s contract with the Danville union expires in June 2021. Employees at the facilities in Berea, Kentucky; Sulligent, Alabama; and Greenville, North Carolina are not represented by unions. In Brazil, all employees are represented by a union. The Company’s contracts with the Brazilian unions expire annually at which time

4


salaries and certain benefits are negotiated for the following year. In Mexico, certain employees are unionized. The Company’s contract with the Mexico union expires annually in March, at which time salaries are negotiated for the following year. Benefits in Mexico are negotiated every other year. 
In Europe, certain employees in the Helsinki, Finland; Salzgitter, Germany; Craigavon, Northern Ireland; Masate, Italy; Piacenza, Italy; San Donato, Italy; and Nijmegen, the Netherlands facilities are unionized. All of the European employees are part of works councils or employee forums, which perform a consultative role on business and employment matters.
The Company believes its current labor relations with both union and non-union employees are generally satisfactory. However, there can be no assurances that the Company will be able to successfully renegotiate its union contracts without work stoppages or on acceptable terms. A prolonged work stoppage at a unionized facility could have a material adverse effect on the Company’s business and results of operations.
Environmental Matters
The Company’s manufacturing operations are subject to laws and regulations relating to the protection of the environment, including those governing the management and disposal of hazardous substances. The Company’s policies stress compliance, and the Company believes it is currently in substantial compliance with existing environmental laws. If the Company fails to comply with these laws or its environmental permits, it could incur substantial costs, including cleanup costs, fines and civil and criminal sanctions. In addition, future changes to environmental laws could require the Company to incur significant additional expense or restrict operations. Based on current information, the Company does not expect compliance with environmental requirements to have a material adverse effect on the Company’s financial condition or results of operations.
The Company’s products may also be subject to laws and regulations relating to the protection of the environment, including those governing vehicle exhaust. Regulatory agencies in the United States and Europe have issued or proposed various regulations and directives designed to reduce emissions from spark-ignited engines and diesel engines used in off-road vehicles, such as industrial lift trucks. These regulations require the Company and other lift truck manufacturers to incur costs to modify designs and manufacturing processes and to perform additional testing and reporting. While there can be no assurance, the Company believes the impact of the additional expenditures to comply with these requirements will not have a material adverse effect on its business.
The Company is investigating or remediating historical contamination at some current and former sites caused by its operations or those of businesses it acquired. While the Company is not currently aware that any material outstanding claims or obligations exist with regard to these sites, the discovery of additional contamination at these or other sites could result in significant cleanup costs that could have a material adverse effect on the Company’s financial conditions and results of operations.
In connection with any acquisition made by the Company, the Company could, under some circumstances, be held financially liable for or suffer other adverse effects due to environmental violations or contamination caused by prior owners of businesses the Company has acquired. In addition, under some of the agreements through which the Company has sold businesses or assets, the Company has retained responsibility for certain contingent environmental liabilities arising from pre-closing operations. These liabilities may not arise, if at all, until years later and could require the Company to incur significant additional expenses.
Government and Trade Regulations
In the past, the Company’s business has been affected by trade disputes between the United States and Europe. In addition, the Company has been impacted by ongoing trade disputes with China which has led to the imposition of tariffs resulting in higher material costs. In the future, to the extent the Company is affected by trade disputes with other foreign jurisdictions, and increased tariffs are levied on its goods or the materials the Company purchases, its results of operations may be materially adversely affected.
Item 1A. RISK FACTORS
The lift truck business is cyclical. Any downturn in the general economy could result in significant decreases in the Company's revenue and profitability and an inability to sustain or grow the business.
The Company's lift truck business historically has been cyclical. Fluctuations in the rate of orders for lift trucks, attachments and fuel-cell technology reflect the capital investment decisions of the Company's customers, which depend to a certain extent on the general level of economic activity in the various industries the lift truck customers serve. During economic downturns, customers tend to delay new lift truck and parts purchases. Consequently, the Company has experienced, and in the future may continue to experience, significant fluctuations in revenues and net income. If there is a downturn in the general economy, or in

5


the industries served by lift truck customers, the Company's revenue and profitability could decrease significantly, and the Company may not be able to sustain or grow the business.
The Company is subject to risks relating to its global operations.
The Company is a U.S.-based multinational corporation that has global operations. Operating globally subjects the Company to changes in government regulations and policies in a large number of jurisdictions around the world, including those related to tariffs and trade barriers, investments, property ownership rights, taxation, and exchange controls. Changes in the relative values of currencies occur from time to time and could affect the Company's operating results.
Further, existing free trade laws and regulations provide certain beneficial duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Changes in laws or policies governing the terms of international trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where the Company manufactures products could have a material adverse impact on the Company's business and financial results.
Part of the strategy to expand worldwide market share is strengthening the Company's non-U.S. distribution network. A part of this strategy also includes decreasing costs by sourcing basic components in lower-cost countries. Implementation of this part of the strategy may increase the impact of the risks to global operations and there can be no assurance that such risks will not have an adverse effect on the Company's revenues, profitability or market share.
Economic and political conditions in the United States and abroad may lead to significant changes in tax rules and regulations. For example, Brexit and proposals to reform non-U.S. tax laws or other regulations could significantly impact how multinational corporations do business. Although the Company cannot predict the final form of any regulation, if adopted at all, such regulations could, if enacted, have a material adverse impact on the Company's profitability.
The Company depends on a limited number of suppliers for specific critical components.
The Company depends on a limited number of suppliers for some of its critical components, including diesel, gasoline and alternative fuel engines and cast-iron counterweights used to counterbalance some lift trucks. Some of these critical components are imported and subject to regulation, primarily with respect to customary inspection of such products by the U.S. Customs and Border Protection under the auspices of the U.S. Department of Homeland Security. The results of operations could be adversely affected if the Company is unable to obtain these critical components, or if the costs of these critical components were to increase significantly, due to regulatory compliance or otherwise, and the Company was unable to pass the cost increases on to its customers.
The cost of raw materials used by the Company's products has fluctuated and may continue to fluctuate, which could materially reduce the Company's profitability.
At times, the Company has experienced significant increases in materials costs, primarily as a result of global increases in industrial metals, including steel, lead and copper and other commodity prices, such as rubber, as a result of increased demand and limited supply. The Company manufactures products that include raw materials that consist of steel, rubber, copper, lead, castings and counterweights. The Company also purchases parts provided by suppliers that are manufactured from castings and steel or contain lead. The cost of these parts is affected by the same economic conditions that impact the cost of the parts the Company manufactures. The cost to manufacture lift trucks and related service parts has been and will continue to be affected by fluctuations in prices for these raw materials. If costs of these raw materials increase, the Company's profitability could be materially reduced.
The pricing and costs of the Company's products have been and may continue to be impacted by currency fluctuations, which could materially increase costs, and result in material exchange losses and reduce operating margins.
Because the Company conducts transactions in various currencies, including euros, U.S. dollars, Japanese yen, British pounds, Swedish kroner, Mexican peso, Brazilian real and Chinese renminbi, lift truck pricing is subject to the effects of fluctuations in the value of these currencies and fluctuations in the related currency exchange rates. As a result, the Company's sales have historically been affected by, and may continue to be affected by, these fluctuations. In addition, exchange rate movements between currencies in which the Company purchases materials and components and manufactures certain products and the currencies in which the Company sells those products have been affected by and may continue to result in exchange losses that could materially reduce operating margins. Furthermore, the Company's hedging contracts may not fully offset risks from changes in currency exchange rates.
The Company relies primarily on its network of independent dealers to sell lift trucks and aftermarket parts and the Company has no direct control over sales by those dealers to customers. Ineffective or poor performance by these independent dealers could result in a significant decrease in revenues and profitability and the inability to sustain or grow the business.

6


The Company relies primarily on independent dealers for sales of lift trucks and aftermarket parts. Sales of the Company's products are therefore subject to the quality and effectiveness of the dealers, who are not subject to the Company's direct control. As a result, ineffective or poorly performing dealers could result in a significant decrease in revenues and profitability and the Company may not be able to sustain or grow its business.
If the Company's strategic initiatives, including the introduction of new products, do not prove effective, revenues, profitability and market share could be significantly reduced.
Changes in the timing of implementation of the Company's current strategic initiatives may result in a delay in the expected recognition of future costs and realization of future benefits. In addition, if future industry demand levels are lower than expected, the actual annual cost savings could be lower than expected. If the Company is unable to successfully implement these strategic initiatives, revenues, profitability and market share could be significantly reduced.

The Company may not be successful in commercializing Nuvera’s technology, which success would depend, in part, on the Company’s ability to protect Nuvera’s intellectual property.

The Company may not be able to commercialize Nuvera’s fuel-cell technologies on economically efficient terms. Unforeseen difficulties, such as delays in development due to design defects or changes in specifications and insufficient research and development resources or cost overruns, may hinder the Company’s ability to incorporate Nuvera’s technologies into its product lines on an economically favorable basis or at all.

Furthermore, Nuvera’s commercial success will depend largely on the Company’s ability to maintain patent and other intellectual property protection covering certain of Nuvera’s technologies. Nuvera’s fuel-cell technology may not be economically viable if the Company is unable to prevent others from infringing or successfully challenging the validity of certain patents and other intellectual property rights attributable to Nuvera.
Failure to compete effectively within the Company's industry could result in a significant decrease in revenues and profitability.
The Company experiences intense competition in the sale of lift trucks and aftermarket parts. Competition in the lift truck industry is based primarily on strength and quality of dealers, brand loyalty, customer service, new lift truck sales prices, availability of products and aftermarket parts, comprehensive product line offerings, product performance, product quality and features and the cost of ownership over the life of the lift truck. The Company competes with several global manufacturers that operate in all major markets. These manufacturers may have lower manufacturing costs and greater financial resources than the Company, which may enable them to commit larger amounts of capital in response to changing market conditions. If the Company fails to compete effectively, revenues and profitability could be significantly reduced.
If the global capital goods market declines, the cost saving efforts the Company has implemented may not be sufficient to achieve the benefits expected.
If the global economy or the capital goods market declines, revenues could decline. If revenues are lower than expected, the programs the Company has implemented may not achieve the benefits expected. Furthermore, the Company may be forced to take additional cost saving steps that could result in additional charges that materially adversely affect the ability to compete or implement the Company's current business strategies.
The Company is subject to import and export controls, which could subject the Company to liability or impair the Company's ability to compete in international markets.
Due to the international scope of the Company's operations, the Company is subject to a complex system of import- and export-related laws and regulations, including U.S. export control and customs regulations and customs regulations of other countries. These regulations are complex and vary among the legal jurisdictions in which the Company operates. Obtaining the necessary authorizations, including any required license, for a particular transaction may be time-consuming, is not guaranteed, and may result in the delay or loss of sales opportunities. Furthermore, U.S. export control laws and economic sanctions laws prohibit certain transactions with U.S. embargoed or sanctioned countries, governments, persons and entities. Any alleged or actual failure to comply with such laws and regulations may subject the Company to government scrutiny, investigation, and civil and criminal penalties, and may limit the Company's ability to import or export products or to provide services outside the United States. Depending on severity, any of these penalties could have a material impact on the Company's business, financial condition and results of operations. There can be no assurance that laws and regulations will not be changed in ways which will require the Company to modify its business models and objectives or affect the Company's returns on investments by restricting existing activities and products, subjecting them to escalating costs or prohibiting them outright.

7


The Company is subject to recourse or repurchase obligations with respect to the financing arrangements of some of its customers.
Through arrangements with WF and others, dealers and other customers are provided financing for new lift trucks in the United States and in major countries of the world outside of the United States. Through these arrangements, the Company's dealers and certain customers are extended credit for the purchase of lift trucks to be placed in the dealer’s floor plan inventory or the financing of lift trucks that are sold or leased to customers. For some of these arrangements, the Company provides recourse or repurchase obligations such that it would become obligated in the event of default by the dealer or customer. Total amounts subject to these types of obligations were $192.7 million and $203.5 million at December 31, 2018 and 2017, respectively. Generally, the Company maintains a perfected security interest in the assets financed such that, in the event that the Company becomes obligated under the terms of the recourse or repurchase obligations, it may take title to the assets financed. The Company cannot be certain, however, that the security interest will equal or exceed the amount of the recourse or repurchase obligations. In addition, the Company cannot be certain that losses under the terms of the recourse or repurchase obligations will not exceed the reserves that have been set aside in the consolidated financial statements. The Company could incur a charge to earnings if reserves prove to be inadequate, which could have a material adverse effect on results of operations and liquidity for the period in which the charge is taken.
Actual liabilities relating to pending lawsuits may exceed the Company's expectations.
The Company is a defendant in pending lawsuits involving, among other things, product liability claims. The Company cannot be sure that it will succeed in defending these claims, that judgments will not be rendered against the Company with respect to any or all of these proceedings or that reserves set aside or insurance policies will be adequate to cover any such judgments. The Company could incur a charge to earnings if reserves prove to be inadequate or the average cost per claim or the number of claims exceed estimates, which could have a material adverse effect on results of operations and liquidity for the period in which the charge is taken and any judgment or settlement amount is paid.

Other products may be introduced to the market by competitors, making the Nuvera technology less marketable.

The use of fuel-cell technology in industrial and commercial applications is a relatively new development. Companies implementing such technology face competition from competitors that integrate more traditional energy technologies into their product lines, as well as competitors that have implemented or are implementing alternatives to traditional energy technologies, such as lithium-ion batteries, fuel additives and other high efficiency or “renewable” technologies. Any of these technologies may have more established or otherwise more attractive manufacturing, distribution and operating cost features, which could negatively impact customers’ preferences for product lines that incorporate fuel-cell technology and, as a result, diminish the marketability of products incorporating Nuvera technology.
Actual liabilities relating to environmental matters may exceed the Company's expectations.
The Company's manufacturing operations are subject to laws and regulations relating to the protection of the environment, including those governing the management and disposal of hazardous substances. If the Company fails to comply with these laws or the Company's environmental permits, then the Company could incur substantial costs, including cleanup costs, fines and civil and criminal sanctions. In addition, future changes to environmental laws could require the Company to incur significant additional expenses or restrict operations.
The Company's products may also be subject to laws and regulations relating to the protection of the environment, including those governing vehicle exhausts. Regulatory agencies in the United States and Europe have issued or proposed various regulations and directives designed to reduce emissions from spark-ignited engines and diesel engines used in off-road vehicles, such as industrial lift trucks. These regulations require the Company and other lift truck manufacturers to incur costs to modify designs and manufacturing processes and to perform additional testing and reporting.
The Company is investigating or remediating historical contamination at some current and former sites caused by its operations or those of businesses it acquired. While the Company is not currently aware that any material outstanding claims or obligations exist with regard to these sites, the discovery of additional contamination at these or other sites could result in significant cleanup costs that could have a material adverse effect on its financial condition and results of operations.
In connection with any acquisition the Company has made, it could, under some circumstances, be held financially liable for or suffer other adverse effects due to environmental violations or contamination caused by prior owners of businesses the Company acquired. In addition, under some of the agreements through which the Company has sold businesses or assets, it has retained responsibility for certain contingent environmental liabilities arising from pre-closing operations. These liabilities may not arise, if at all, until years later and could require the Company to incur significant additional expenses, which could materially adversely affect the results of operations and financial condition.

8


The Company may be unable to protect its information technology infrastructure against service interruptions, data corruption, cyber-based attacks or network breaches, which could disrupt business operations or result in a loss of data confidentiality.
The Company relies on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities, including supply chain, manufacturing, distributing, invoicing and collection. The Company uses information technology systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. These technological networks and systems may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components; power outages; hardware failures; or computer viruses or other types of cyber attacks. In addition, security breaches could result in unauthorized disclosure of confidential information. If these information technology systems suffer severe damage, disruption, breach, or shutdown, and business continuity plans do not effectively resolve the issues in a timely manner, there could be a negative impact on operating results or the Company may suffer financial or reputational damage.
The Company may become subject to claims under non-U.S. laws and regulations, which may require expensive, time-consuming and distracting litigation.
Because the Company has employees, property and business operations outside of the United States, it is subject to the laws and the court systems of many jurisdictions. The Company may become subject to claims outside the United States based in non-U.S. jurisdictions for violations of their laws with respect to the Company's non-U.S. operations. In addition, these laws may be changed or new laws may be enacted in the future. Non-U.S. litigation is often expensive, time consuming and distracting. As a result, any of these risks could significantly reduce profitability and the Company's ability to operate its businesses effectively.
The Company may be subject to risks relating to increasing cash requirements of certain employee benefit plans which may affect its financial position.
The expenses recorded for, and cash contributions required to be made to, the Company's defined benefit pension plans are dependent on changes in market interest rates and the value of plan assets, which are dependent on actual investment returns. Significant changes in market interest rates, decreases in the value of plan assets or investment losses on plan assets may require the Company to increase the cash contributed to defined benefit plans which may affect its financial position.
The Company is dependent on key personnel, and the loss of these key personnel could significantly reduce profitability.
The Company is highly dependent on the skills, experience and services of key personnel, and the loss of key personnel could have a material adverse effect on its business, operating results and financial condition. Employment and retention of qualified personnel is important to the successful conduct of the Company's business. Therefore, the Company's success also depends upon its ability to recruit, hire, train and retain additional skilled and experienced management personnel. The Company's inability to hire and retain personnel with the requisite skills could impair its ability to manage and operate its business effectively and could significantly reduce profitability.
Certain members of the Company’s extended founding family own a substantial amount of its Class A and Class B common stock and, if they were to act in concert, could control the outcome of director elections and other stockholder votes on significant corporate actions.
The Company has two classes of common stock: Class A common stock and Class B common stock. Holders of Class A common stock are entitled to cast one vote per share and, as of December 31, 2018, accounted for approximately 25 percent of the voting power of the Company. Holders of Class B common stock are entitled to cast ten votes per share and, as of December 31, 2018, accounted for the remaining voting power of the Company. As of December 31, 2018, certain members of the Company’s extended founding family held approximately 30 percent of the Company’s outstanding Class A common stock and approximately 85 percent of the Company’s outstanding Class B common stock. On the basis of this common stock ownership, certain members of the Company’s extended founding family could have exercised 71 percent of the Company’s total voting power. Although there is no voting agreement among such extended family members, in writing or otherwise, if they were to act in concert, they could control the outcome of director elections and other stockholder votes on significant corporate actions, such as certain amendments to the Company’s certificate of incorporation and sales of the Company or substantially all of its assets. Because certain members of the Company’s extended founding family could prevent other stockholders from exercising significant influence over significant corporate actions, the Company may be a less attractive takeover target, which could adversely affect the market price of its common stock.


9


Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
The following table presents the principal assembly, manufacturing, distribution and office facilities that the Company owns or leases: 
Segment
  
Facility Location
  
Owned/Leased
  
Function(s)
Lift Truck
 
 
 
 
 
 
Americas
 
Berea, Kentucky
  
Owned
  
Assembly of lift trucks and manufacture of component parts
 
 
Charlotte, North Carolina
 
Leased
 
Customer experience and training center
 
  
Cleveland, Ohio
  
Leased
  
Global headquarters
 
  
Danville, Illinois
  
Owned
  
Americas parts distribution center
 
  
Fairview, Oregon
  
Owned
  
Counterbalanced development center for design and testing of lift trucks, prototype equipment and component parts
 
  
Greenville,
North Carolina
  
Owned
  
Divisional headquarters and marketing and sales operations for Hyster® and Yale® in the Americas; Americas warehouse development center; assembly of lift trucks and manufacture of component parts
 
 
Itu, Brazil
 
Owned
 
Assembly of lift trucks and parts distribution center
 
  
Ramos Arizpe,
Mexico
  
Owned
  
Manufacture of component parts for lift trucks
 
  
Sulligent, Alabama
  
Owned
  
Manufacture of component parts for lift trucks
EMEA
  
Craigavon,
Northern Ireland
  
Owned
  
Manufacture of lift trucks and cylinders; frame and mast fabrication for EMEA
 
  
Frimley, Surrey,
United Kingdom
  
Leased
  
Divisional headquarters and marketing and sales operations for Hyster® and Yale® in EMEA
 
  
Irvine, Scotland
  
Leased
  
European administrative center
 
  
Masate, Italy
  
Leased
  
Assembly of lift trucks; European warehouse development center
 
  
Nijmegen,
The Netherlands
  
Owned
  
Big trucks development center; manufacture and assembly of big trucks and component parts; European parts distribution center
JAPIC
 
Fuyang, China
 
Owned
 
Manufacture and assembly of lift trucks
 
  
Pune, India
  
Leased
  
Engineering design services
 
  
Shanghai, China
  
Owned
  
Assembly of lift trucks, sale of parts and marketing operations of China
 
  
Sydney, Australia
  
Leased
  
Divisional headquarters and sales and marketing for JAPIC; JAPIC parts distribution center
Bolzoni
 
Helsinki, Finland
 
Leased
 
Manufacture and distribution of Bolzoni products
 
 
Heibei, China
 
Owned
 
Manufacture and distribution of Bolzoni products
 
 
Homewood, Illinois
 
Owned
 
Manufacture and distribution of Bolzoni products
 
 
Piacenza, Italy
 
Owned
 
Bolzoni headquarters; manufacture and distribution of Bolzoni products
 
 
Salzgitter, Germany
 
Owned
 
Manufacture and distribution of Bolzoni products
 
 
Wuxi, China
 
Owned
 
Manufacture and distribution of Bolzoni products
Nuvera
 
Billerica, Massachusetts
 
Leased
 
Nuvera research and development laboratory
SN’s operations are supported by three facilities. SN’s headquarters are located in Obu, Japan at a facility owned by SN. The Obu facility also has assembly and distribution capabilities for lift trucks and parts. In Cavite, the Philippines and Hanoi, Vietnam, SN owns facilities for the manufacture of components for SN and the Company's products.

Item 3. LEGAL PROCEEDINGS
The Company is, and will likely continue to be, involved in a number of legal proceedings which the Company believes generally arise in the ordinary course of the business, given its size, history and the nature of its business and products. The Company is not a party to any material legal proceeding.
Item 4. MINE SAFETY DISCLOSURES
None.

10


Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following tables set forth the name, age, current position and principal occupation and employment during the past five years of the Company’s executive officers.
Name
 
Age
 
Current Position
 
Other Positions
Alfred M. Rankin, Jr.
 
77

 
Chairman, President and Chief Executive Officer of Hyster-Yale (from prior to 2014), Chairman of HYG (from prior to 2014).
 
 
Colin Wilson
 
64

 
President and Chief Executive Officer, HYG of Hyster-Yale (from September 2014), President and Chief Executive Officer of HYG (from September 2014).
 
President and Chief Operating Officer of HYG (from prior to 2014), President, Americas of HYG (from prior to 2014 to September 2014).
Gregory J. Breier
 
53

 
Vice President, Tax of Hyster-Yale (from May 2014), Vice President, Tax of HYG (from prior to 2014).
 
 
Brian K. Frentzko
 
58

 
Vice President, Treasurer of Hyster-Yale (from prior to 2014), Vice President, Treasurer of HYG (from prior to 2014).
 
 
Jennifer M. Langer
 
45

 
Vice President, Controller of Hyster-Yale (from prior to 2014), Vice President, Controller of HYG (from prior to 2014).
 
 
David M. LeBlanc
 
54

 
Vice President, Strategy, Planning and Business Development of HYG (from August 2018).
 
Group President, International Engineered Support Structures, Valmont Industries, Inc. (an industrial company) (from April 2015 to February 2018), President, Chemical Analysis Division, Thermo Fisher Scientific Inc. (a medical company) (from prior to 2014 to October 2014).
Lauren E. Miller
 
64

 
Senior Vice President, Chief Marketing Officer of Hyster-Yale (from January 2015), Senior Vice President, Chief Marketing Officer of HYG (from January 2015).
 
Senior Vice President, Marketing and Consulting of Hyster-Yale (from prior to 2014 to January 2015), Senior Vice President, Marketing and Consulting of HYG (from prior to 2014 to January 2015).
Charles F. Pascarelli
 
59

 
Senior Vice President, President, Americas of HYG (from January 2015)
 
President, Sales and Marketing, Americas of HYG (from prior to 2014 to January 2015).
Rajiv K. Prasad
 
55

 
Chief Product and Operations Officer of HYG (from February 2018).
 
Senior Vice President, Global Product Development, Manufacturing and Supply Chain Strategy of HYG (from September 2014 to February 2018). Vice President, Global Product Development and Manufacturing of HYG (from prior to 2014 to September 2014).
Anthony J. Salgado
 
48

 
Senior Vice President, JAPIC of HYG (from January 2016).
 
Vice President, Corporate Officer, UniCarriers Corporation (an industrial company) (from April 2014 to January 2016), President, UniCarriers Americas Corporation (from prior to 2014 to January 2016).
Harry Sands
 
67

 
Senior Vice President, Managing Director, Europe, Middle East and Africa of HYG (from June 2015).
 
Vice President, Manufacturing EMEA of HYG (from prior to 2014 to June 2015).
Kenneth C. Schilling
 
59

 
Senior Vice President and Chief Financial Officer of Hyster-Yale (from September 2014), Senior Vice President and Chief Financial Officer of HYG (from September 2014).
 
Vice President and Chief Financial Officer of Hyster-Yale (from prior to 2014 to September 2014), Vice President and Chief Financial Officer of HYG (from prior to 2014 to September 2014).
Gopichand Somayajula

 
62

 
Vice President, Global Product Development of HYG (from prior to 2014)
 
 
Suzanne S. Taylor
 
56

 
Senior Vice President, General Counsel and Secretary of Hyster-Yale (from May 2016), Senior Vice President, General Counsel and Secretary of HYG (from May 2016).
 
Vice President, Deputy General Counsel and Assistant Secretary of Hyster-Yale (from prior to 2014 to May 2016), Vice President, Deputy General Counsel and Assistant Secretary of HYG (from prior to 2014 to May 2016).
Mark H. Trivett
 
49

 
Vice President Finance, Europe, Middle East and Africa of HYG (from prior to 2014).
 
 
Raymond C. Ulmer
 
55

 
Vice President Finance, Americas of HYG (from prior to 2014).
 
 
The information under this Item is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.There exists no arrangement or understanding between any executive officer and any other person pursuant to which such executive officer was elected. Each executive officer serves until his or her successor is elected and qualified.

11


PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's Class A common stock is traded on the New York Stock Exchange under the ticker symbol “HY.” There is no established public trading market for the Company's Class B common stock, and no alternative trading or quotation system for the Company's Class B common stock has been or is expected to be established. The Class B common stock is convertible into Class A common stock on a one-for-one basis.
At December 31, 2018, there were approximately 848 Class A common stockholders of record and approximately 875 Class B common stockholders of record.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
There have been no issuer purchases of equity securities and no publicly announced repurchase program currently exists.

Item 6. SELECTED FINANCIAL DATA
 
Year Ended December 31
 
2018
 
2017 (1)
 
2016
 
2015
 
2014
 
(In millions, except per share and employee data)
Operating Statement Data:
 
 
 
 
 
 
 
 
 
Revenues
$
3,174.4

 
$
2,885.2

 
$
2,569.7

 
$
2,578.1

 
$
2,767.2

Operating profit
$
38.8

 
$
74.1

 
$
32.9

 
$
103.5

 
$
148.8

Net income
$
34.3

 
$
48.9

 
$
42.3

 
$
75.1

 
$
110.2

Net (income) loss attributable to noncontrolling interest
0.4

 
(0.3
)
 
0.5

 
(0.4
)
 
(0.4
)
Net income attributable to stockholders
$
34.7

 
$
48.6

 
$
42.8

 
$
74.7

 
$
109.8

Basic earnings per share attributable to stockholders
$
2.10

 
$
2.95

 
$
2.61

 
$
4.58

 
$
6.61

Diluted earnings per share attributable to stockholders
$
2.09

 
$
2.94

 
$
2.61

 
$
4.57

 
$
6.58

Balance Sheet Data at December 31:
 

 
 

 
 

 
 

 
 

Total assets
$
1,742.1

 
$
1,647.9

 
$
1,287.1

 
$
1,095.9

 
$
1,120.8

Long-term debt
$
210.1

 
$
216.2

 
$
82.2

 
$
19.6

 
$
12.0

Stockholders' equity
$
527.4

 
$
565.5

 
$
463.8

 
$
460.8

 
$
454.5

Cash Flow Data:
 

 
 

 
 

 
 

 
 

Provided by (used for) operating activities
$
67.6

 
$
164.7

 
$
(48.9
)
 
$
89.4

 
$
100.0

Used for investing activities
$
(110.9
)
 
$
(47.3
)
 
$
(145.1
)
 
$
(31.3
)
 
$
(44.4
)
Provided by (used for) financing activities
$
(87.6
)
 
$
53.1

 
$
77.9

 
$
(7.1
)
 
$
(110.5
)
Other Data:
 

 
 

 
 

 
 

 
 

Per share data:
 

 
 

 
 

 
 

 
 

Cash dividends
$
1.2325

 
$
1.2025

 
$
1.1700

 
$
1.1300

 
$
1.0750

Market value at December 31
$
61.96

 
$
85.16

 
$
63.77

 
$
52.45

 
$
73.20

Stockholders' equity at December 31
$
31.85

 
$
34.35

 
$
28.30

 
$
28.23

 
$
27.98

Actual shares outstanding at December 31
16.561

 
16.462

 
16.391

 
16.324

 
16.241

Basic weighted average shares outstanding
16.540

 
16.447

 
16.376

 
16.307

 
16.607

Diluted weighted average shares outstanding
16.602

 
16.514

 
16.427

 
16.355

 
16.675

Total employees at December 31(2)
7,700

 
6,800

 
6,500

 
5,400

 
5,400


(1)
During 2017, the Company recognized $19.8 million of equity income from HYGFS and $38.2 million of income tax expense as a result of the Tax Cuts and Jobs Act (the “Tax Reform Act”), which was signed into law on December 22, 2017. Further information on the impacts of the Tax Reform Act is discussed in Note 7 to the consolidated financial statements.
(2)
Excludes temporary employees.


12


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


OVERVIEW
Hyster-Yale Materials Handling, Inc. ("Hyster-Yale" or the "Company") and its subsidiaries, including its operating company Hyster-Yale Group, Inc. ("HYG"), is a leading, globally integrated, full-line lift truck manufacturer. The Company offers a broad array of solutions aimed at meeting the specific materials handling needs of its customers, including attachments and hydrogen fuel cell power products, telematics, automation and fleet management services, as well as a variety of other power options for its lift trucks. The Company, through HYG, designs, engineers, manufactures, sells and services a comprehensive line of lift trucks, attachments and aftermarket parts marketed globally primarily under the Hyster® and Yale® brand names, mainly to independent Hyster® and Yale® retail dealerships. The materials handling business historically has been cyclical because the rate of orders for lift trucks fluctuates depending on the general level of economic activity in the various industries and countries its customers serve. Lift trucks and component parts are manufactured in the United States, China, Northern Ireland, Mexico, the Netherlands, the Philippines, Italy, Vietnam, Japan and Brazil.

The Company operates Bolzoni S.p.A. ("Bolzoni"). Bolzoni is a leading worldwide producer and distributor of attachments, forks and lift tables marketed under the Bolzoni Auramo® and Meyer® brand names. Bolzoni products are manufactured in Italy, China, Germany, Finland and the United States. Through the design, production and distribution of a wide range of attachments, Bolzoni has a strong presence in the market niche of lift-truck attachments and industrial material handling.

In 2018, the Company announced, as part of a plan to expand Bolzoni's capabilities in the United States, Bolzoni's North America attachment manufacturing will be moved into HYG's Sulligent, Alabama manufacturing facility over the course of 2019. As a result, effective January 1, 2019, the Sulligent facility became a Bolzoni facility. As of December 31, 2018, the Sulligent facility has been included in the lift truck operations within this Annual Report on Form 10-K. The Company will reclassify the historical results of the Sulligent facility for 2019 reporting beginning with the first quarter 2019 Form 10-Q.

The Company operates Nuvera Fuel Cells, LLC ("Nuvera"). Nuvera is an alternative-power technology company focused on hydrogen fuel cell stacks and engines.

On June 1, 2018, the Company completed the acquisition of the majority interest in Zhejiang Maximal Forklift Co., Ltd. ("Maximal"). Maximal is a Chinese manufacturer of utility and standard lift trucks and specialized material handling equipment involved in the design, manufacture, service and distribution of Class 1 electric and Class 5 internal combustion engine counterbalance utility and standard platforms, and Class 2 and Class 3 electric warehouse products for both the local China and global markets under the Maximal brand. Maximal also designs and produces specialized products in the port equipment and rough terrain forklift markets. The results of Maximal are included in the JAPIC segment since the date of acquisition.

Competition in the materials handling industry is intense and is based primarily on strength and quality of distribution, brand loyalty, customer service, new lift truck sales prices, availability of products and aftermarket parts, comprehensive product line offerings, product performance, product quality and features and the cost of ownership over the life of the lift truck. The Company competes with several global lift truck manufacturers that operate in all major markets, as well as other niche companies. The lift truck industry also competes with alternative methods of materials handling, including conveyor systems and automated guided vehicle systems. The Company's aftermarket parts offerings compete with parts manufactured by other lift truck manufacturers, as well as companies that focus solely on the sale of generic parts.

The Company's mission is to be a leading, globally integrated designer, manufacturer and marketer of a complete range of lift-truck solutions by leveraging its high-quality, application-tailored lift trucks, attachments and power solutions to offer the lowest cost of ownership and the best overall value. The Company’s core competency is lift truck manufacturing, but its goal is to become the lift truck solutions partner to the materials handling market, one customer and one industry at a time.

The Company’s objective is to provide a wide-range of solutions to its customers to generate profitable growth through increasing volumes, which in turn are expected to generate market share gains and drive improved margins. The Company plans to accomplish these objectives by implementing its core strategic initiatives to: provide the lowest cost of ownership, while enhancing productivity for customers; be the leader in the delivery of industry- and customer-focused solutions; be the leader in independent distribution; grow in emerging markets; be the leader in the attachments business and be a leader in fuel cells and their applications.

13


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


Critical Accounting Policies and Estimates
The discussion and analysis of financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities, if any. On an ongoing basis, the Company evaluates its estimates based on historical experience, actuarial valuations and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.
The Company believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the consolidated financial statements.
Revenue recognition: Revenue is recognized when obligations under the terms of a contract with the customer are satisfied which occurs when control of the trucks, parts, or services are transferred to the customer. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing services. The satisfaction of performance obligations under the terms of a revenue contract generally gives rise for the right to payment from the customer. The Company's standard payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized and when payment is due is not significant. Given the insignificant days between revenue recognition and receipt of payment, financing components do not exist between the Company and its customers. Taxes collected from customers are excluded from revenue. The estimated costs of product warranties are recognized as expense when the products are sold. See Note 16 for further information on product warranties.
The majority of the Company's sales contracts contain performance obligations satisfied at a point in time when title and risks and rewards of ownership have transferred to the customer. Revenue for service contracts are recognized as the services are provided.

For contracts with customers that include multiple performance obligations, judgment is required to determine whether performance obligations specified in these contracts are distinct and should be accounted for as separate revenue transactions for recognition purposes. For such arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are generally determined based on the prices charged to customers or using expected cost plus margin. Impairment losses recognized on receivables or contract assets were not significant for the year ended December 31, 2018.

The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are reported on the line “Selling, general and administrative expenses” in the Consolidated Statements of Operations.

The Company pays for shipping and handling activities regardless of when control is transferred and has elected to account for shipping and handling as activities to fulfill the promise to transfer the good, rather than a promised service. These costs are reported on the line “Cost of sales” in the Consolidated Statements of Operations.
Product warranties: The Company provides for the estimated cost of product warranties at the time revenues are recognized. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of component suppliers, the warranty obligation is affected by product failure rates, labor costs and replacement component costs incurred in correcting a product failure. If actual product failure rates, labor costs or replacement component costs differ from the Company's estimates, which are based on historical failure rates and consideration of known trends, revisions to the estimate of the cost to correct product failures would be required. If the estimate of the cost to correct product failures were to increase by one percent over 2018 levels, the reserves for product warranties would increase and additional expense of $4.6 million would be incurred. The Company's past results of operations have not been materially affected by a change in the estimate of product warranties and although there can be no assurances, the Company is not aware of any circumstances that would be reasonably likely to materially change the estimates in the future.
Retirement benefit plans: The Company maintains various defined benefit pension plans that provide benefits based on years of service and average compensation during certain periods. Pension benefits are frozen for all employees other than certain

14


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


employees in the Netherlands. All other eligible employees, including employees whose pension benefits are frozen, receive retirement benefits under defined contribution retirement plans. The Company's policy is to periodically make contributions to fund the defined benefit pension plans within the range allowed by applicable regulations. The defined benefit pension plan assets consist primarily of publicly traded stocks and government and corporate bonds. There is no guarantee the actual return on the plans’ assets will equal the expected long-term rate of return on plan assets or that the plans will not incur investment losses.
The expected long-term rate of return on defined benefit plan assets reflects management’s expectations of long-term rates of return on funds invested to provide for benefits included in the projected benefit obligations. In establishing the expected long-term rate of return assumption for plan assets, the Company considers the historical rates of return over a period of time that is consistent with the long-term nature of the underlying obligations of these plans as well as a forward-looking rate of return. The historical and forward-looking rates of return for each of the asset classes used to determine the Company's estimated rate of return assumption were based upon the rates of return earned or expected to be earned by investments in the equivalent benchmark market indices for each of the asset classes.
Expected returns for most of the Company's pension plans are based on a calculated market-related value of assets. Under this methodology, asset gains and losses resulting from actual returns that differ from expected returns are recognized in the market-related value of assets ratably over three years.
The basis for the selection of the discount rate for each plan is determined by matching the timing of the payment of the expected obligations under the defined benefit plans against the corresponding yield of high-quality corporate bonds of equivalent maturities.

The following illustrates the sensitivity of the net periodic benefit cost and projected benefit obligation to a 1% change in the discount rate or return on plan assets (in millions):
Assumption
 
Change
 
Increase (decrease)
2019 net pension expense
 
Increase (decrease)
2018 projected benefit obligation
Discount rate
 
1% increase
 
$(0.2)
 
$(27.1)
 
 
1% decrease
 
 
31.4
Return on plan assets
 
1% increase
 
(2.1)
 
N/A
 
 
1% decrease
 
2.1
 
N/A
A change in life expectancy by one year would result in a $4.5 million change in the 2018 projected benefit obligation.
See Note 10 to the consolidated financial statements in this Annual Report on Form 10-K for further discussion of the retirement benefit plans.
Long-lived assets, goodwill and intangible assets: Net property, plant and equipment, goodwill and net intangible assets at December 31, 2018 were $296.2 million, $108.3 million and $67.7 million, respectively. The Company makes estimates and assumptions in preparing the consolidated financial statements for which actual results will emerge over long periods of time. This includes the recoverability of long-lived assets employed in the business, including assets of acquired businesses. These estimates and assumptions are closely monitored and periodically adjusted as circumstances warrant. For instance, expected asset lives may be shortened or an impairment recorded based on a change in the expected use of the asset or performance of the related asset group.
The Company periodically evaluates long-lived assets, including intangible assets with finite lives, for impairment when changes in circumstances or the occurrence of certain events indicate the carrying amount of an asset may not be recoverable. Upon identification of indicators of impairment, assets and liabilities are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets or liabilities. The asset group would be considered impaired when the estimated future undiscounted cash flows generated by the asset group are less than carrying value. If the carrying value of an asset group is considered impaired, an impairment charge is recorded for the amount that the carrying value of the asset group exceeds its fair value. Fair value is estimated as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The determination of asset groups and the underlying cash flows requires the use of significant judgment.

15


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


The Company has intangible assets, including customer and contractual relationships, patents and technology, and trademarks. Intangible assets with a definite life are amortized over a period ranging from one to twenty years on a systematic and rational basis (generally straight line) that is representative of the asset’s use. Costs related to internally developed intangible assets, such as patents, are expensed as incurred and included in selling, general and administrative expenses.
Intangible assets with an indefinite life, including certain trademarks, are not amortized. Indefinite-lived intangible assets are tested for impairment annually, and are tested for impairment between annual tests if an event occurs or circumstances change that would indicate that the carrying amount may be impaired. An impairment loss generally would be recognized when the fair value is less than the carrying value of the indefinite-lived intangible asset.

Of the $67.7 million of net intangible assets, $17.2 million relates to indefinite-lived trademarks, related to the acquisition of Bolzoni. The primary valuation technique used in estimating the fair value of indefinite-lived intangible assets is the present value of discounted cash flows. Specifically, a relief of royalty rate is applied to estimated sales, with the resulting amounts discounted using an appropriate discount rate of a market participant. The relief of royalty rate is the estimated royalty rate a market participant would pay to acquire the right to market and produce the product. If the resulting discounted cash flows are less than book value of the indefinite-lived intangible asset, an impairment exists and the asset would be adjusted to fair value. Based on impairment testing as of May 1, 2018, no impairment was identified.

Goodwill is tested for impairment annually as of May 1 and is tested for impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. The Company completed the annual testing of impairment of goodwill as of May 1, 2018 at the reporting unit level for the related goodwill. The Company uses either a qualitative or quantitative analysis to determine whether fair value exceeds carrying value. An estimate of the fair value of the reporting unit is determined through a combination of comparable market values for similar businesses and discounted cash flows. These estimates can change significantly based on such factors as the reporting unit's financial performance, economic conditions, interest rates, growth rates, pricing, changes in business strategies and competition. Based on this testing, the fair value of each reporting unit was in excess of its carrying value and no impairment exists.
Factors which could result in future impairment charges include, but are not limited to, changes in worldwide economic conditions, changes in competitive conditions and customer preferences. These risk factors are discussed in Item 1A, "Risk Factors," of this Form 10-K. In addition, changes in the weighted average cost of capital could also impact impairment testing results. The Company will continue to monitor its reporting units and asset groups for any indicators of impairment.
Product liabilities: The Company provides for the estimated cost of personal and property damage relating to its products based on a review of historical experience and consideration of any known trends. Reserves are recorded for estimates of the costs for known claims and estimates of the costs of incidents that have occurred but for which a claim has not yet been reported, up to the stop-loss insurance coverage. While the Company engages in extensive product quality reviews and customer education programs, the product liability provision is affected by the number and magnitude of claims of alleged product-related injury and property damage and the cost to defend those claims. In addition, the estimates regarding the magnitude of claims are affected by changes in assumptions regarding medical costs, inflation rates and trends in damages awarded by juries. Changes in the assumptions regarding any one of these factors could result in a change in the estimate of the magnitude of claims. A one percent increase in the estimate of the number of claims or the magnitude of claims would increase the product liability reserve and reduce operating profit by approximately $0.1 million to $0.3 million. Although there can be no assurances, the Company is not aware of any circumstances that would be reasonably likely to materially change the estimates in the future.
Self-insurance liabilities: The Company is generally self-insured for product liability, environmental liability and medical and workers’ compensation claims. For product liability, catastrophic insurance coverage is retained for potentially significant individual claims. The Company also has insurance for certain historic product liability claims. An estimated provision for claims reported and for claims incurred but not yet reported under the self-insurance programs is recorded and revised periodically based on industry trends, historical experience and management judgment. In addition, industry trends are considered within management’s judgment for valuing claims. Changes in assumptions for such matters as legal judgments and settlements, legal defense costs, inflation rates, medical costs and actual experience could cause estimates to change in the near term. Changes in any of these factors could materially change the estimates for these self-insurance obligations causing a related increase or decrease in reported net operating results in the period of change in the estimate.


16


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


CONSOLIDATED FINANCIAL REVIEW
The following table identifies the components of change for 2018 compared with 2017 by segment:
 
 
Revenues
 
Gross Profit
 
Operating Profit
 
Net Income Attributable to Stockholders
2017
 
$
2,885.2

 
$
502.6

 
$
74.1

 
$
48.6

Increase (decrease) in 2018
 
 
 
 
 
 
 
 
Americas
 
153.4

 
(20.3
)
 
(34.2
)
 
(14.9
)
EMEA
 
53.0

 
7.1

 
(0.2
)
 
1.0

JAPIC
 
68.2

 
1.9

 
(8.4
)
 
(1.2
)
Lift truck business
 
274.6

 
(11.3
)
 
(42.8
)
 
(15.1
)
Bolzoni
 
23.7

 
8.9

 
3.1

 
1.9

Nuvera
 
8.6

 
(3.8
)
 
3.7

 
(1.2
)
Eliminations
 
(17.7
)
 
0.7

 
0.7

 
0.5

2018
 
$
3,174.4

 
$
497.1

 
$
38.8

 
$
34.7


FINANCIAL REVIEW
The segment and geographic results of operations for the Company were as follows for the year ended December 31:
 
 
 
 
 
 
 
Favorable / (Unfavorable) % Change
 
2018
 
2017
 
2016
 
2018 vs. 2017
 
2017 vs. 2016
Lift truck unit shipments (in thousands)
 
 
 
 
 
 
 
 
 
Americas
61.1

 
58.4

 
54.4

 
4.6
 %
 
7.4
 %
EMEA
30.0

 
28.9

 
24.6

 
3.8
 %
 
17.5
 %
JAPIC(1)
10.8

 
6.1

 
5.8

 
77.0
 %
 
5.2
 %
 
101.9

 
93.4

 
84.8

 
9.1
 %
 
10.1
 %
Revenues
 
 
 
 
 
 
 
 
 
Americas
$
1,987.5

 
$
1,834.1

 
$
1,675.7

 
8.4
 %
 
9.5
 %
EMEA
768.8

 
715.8

 
615.7

 
7.4
 %
 
16.3
 %
JAPIC(1)
242.1

 
173.9

 
169.5

 
39.2
 %
 
2.6
 %
Lift truck business
2,998.4

 
2,723.8

 
2,460.9

 
10.1
 %
 
10.7
 %
Bolzoni (2)
200.9

 
177.2

 
115.6

 
13.4
 %
 
n.m.

Nuvera
12.3

 
3.7

 
2.5

 
n.m.

 
n.m.

Eliminations
(37.2
)
 
(19.5
)
 
(9.3
)
 
n.m.

 
n.m.

 
$
3,174.4

 
$
2,885.2

 
$
2,569.7

 
10.0
 %
 
12.3
 %
Gross profit (loss)
 
 
 
 
 
 
 
 
 
Americas
$
314.3

 
$
334.6

 
$
287.9

 
(6.1
)%
 
16.2
 %
EMEA
102.8

 
95.7

 
89.5

 
7.4
 %
 
6.9
 %
JAPIC(1)
22.1

 
20.2

 
17.1

 
9.4
 %
 
18.1
 %
Lift truck business
439.2

 
450.5

 
394.5

 
(2.5
)%
 
14.2
 %
Bolzoni (2)
63.7

 
54.8

 
35.7

 
16.2
 %
 
53.5
 %
Nuvera
(5.9
)
 
(2.1
)
 
(2.7
)
 
181.0
 %
 
(22.2
)%
Eliminations
0.1

 
(0.6
)
 

 
n.m.

 
n.m.

 
$
497.1

 
$
502.6

 
$
427.5

 
(1.1
)%
 
17.6
 %

17


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


 
 
 
 
 
 
 
Favorable / (Unfavorable) % Change
 
2018
 
2017
 
2016
 
2018 vs. 2017
 
2017 vs. 2016
Selling, general and administrative expenses
 
 
 
 
 
 
 
 
 
Americas
$
238.9

 
$
225.0

 
$
214.0

 
(6.2
)%
 
(5.1
)%
EMEA
96.2

 
88.9

 
84.1

 
(8.2
)%
 
(5.7
)%
JAPIC(1)
36.6

 
26.3

 
23.8

 
(39.2
)%
 
(10.5
)%
Lift truck business
371.7

 
340.2

 
321.9

 
(9.3
)%
 
(5.7
)%
Bolzoni (2)
54.2

 
48.4

 
35.8

 
(12.0
)%
 
n.m.

Nuvera
32.4

 
39.9

 
36.9

 
18.8
 %
 
(8.1
)%
 
$
458.3

 
$
428.5

 
$
394.6

 
(7.0
)%
 
(8.6
)%
Operating profit (loss)
 
 
 
 
 
 
 
 
 
Americas
$
75.4

 
$
109.6

 
$
73.9

 
(31.2
)%
 
48.3
 %
EMEA
6.6

 
6.8

 
5.4

 
(2.9
)%
 
25.9
 %
JAPIC(1)
(14.5
)
 
(6.1
)
 
(6.7
)
 
(137.7
)%
 
9.0
 %
Lift truck business
67.5

 
110.3

 
72.6

 
(38.8
)%
 
51.9
 %
Bolzoni (2)
9.5

 
6.4

 
(0.1
)
 
(48.4
)%
 
n.m.

Nuvera
(38.3
)
 
(42.0
)
 
(39.6
)
 
8.8
 %
 
(6.1
)%
Eliminations
0.1

 
(0.6
)
 

 
n.m.

 
n.m.

 
$
38.8

 
$
74.1

 
$
32.9

 
(47.6
)%
 
125.2
 %
 
 
 
 
 
 
 
 
 
 
Interest expense
$
16.0

 
$
14.6

 
$
6.7

 
(9.6
)%
 
(117.9
)%
Other income
$
(13.8
)
 
$
(34.3
)
 
$
(12.1
)
 
(59.8
)%
 
183.5
 %
Income before income taxes
$
36.6

 
$
93.8

 
$
38.3

 
(61.0
)%
 
144.9
 %
Net income (loss) attributable to stockholders
 
 
 
 
 
 
 
 
 
Americas
$
53.5

 
$
68.4

 
$
59.6

 
(21.8
)%
 
14.8
 %
EMEA
6.3

 
5.3

 
9.4

 
18.9
 %
 
(43.6
)%
JAPIC(1)
(3.1
)
 
(1.9
)
 
(2.1
)
 
(63.2
)%
 
9.5
 %
Lift truck business
56.7

 
71.8

 
66.9

 
(21.0
)%
 
7.3
 %
Bolzoni (2)
5.8

 
3.9

 
(0.3
)
 
(48.7
)%
 
n.m.

Nuvera
(27.9
)
 
(26.7
)
 
(23.8
)
 
(4.5
)%
 
(12.2
)%
Eliminations
0.1

 
(0.4
)
 

 
n.m.

 
n.m.

 
$
34.7

 
$
48.6

 
$
42.8

 
(28.6
)%
 
13.6
 %
Diluted earnings per share
$
2.09

 
$
2.94

 
$
2.61

 
(28.9
)%
 
12.6
 %
Reported income tax rate
6.3
%
 
47.9
%
 
n.m.

 
 
 
 
(1) Maximal was acquired on June 1, 2018 and results of operations have been included since the acquisition date.
(2) Bolzoni was acquired on April 1, 2016 and results of operations have been included since the acquisition date.
n.m. - not meaningful

18


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


Following is the detail of the Company's unit shipments, bookings and backlog of unfilled orders placed with its manufacturing and assembly operations for new lift trucks, reflected in thousands of units. As of December 31, 2018, substantially all of the Company's backlog is expected to be sold within the next twelve months.
 
 
YEAR ENDED
 
NINE MONTHS ENDED
 
YEAR ENDED
 
 
December 31, 2018
 
September 30, 2018
 
December 31, 2017
Unit backlog, beginning of period
 
33.8

 
33.8

 
30.7

Unit shipments
 
(101.9
)
 
(74.3
)
 
(93.4
)
Unit bookings
 
112.0

 
82.8

 
96.5

Unit backlog, end of period
 
43.9

 
42.3

 
33.8

The following is the detail of the approximate sales value of the Company's lift truck unit bookings and backlog, reflected in millions of dollars. The dollar value of bookings and backlog is calculated using the current unit bookings and backlog and the forecasted average sales price per unit.
 
 
YEAR ENDED
 
NINE MONTHS ENDED
 
YEAR ENDED
 
 
December 31, 2018
 
September 30, 2018
 
December 31, 2017
Bookings, approximate sales value
 
$
2,600

 
$
1,900

 
$
2,260

Backlog, approximate sales value
 
$
1,190

 
$
1,090

 
$
860

2018 Compared with 2017
The following table identifies the components of change in revenues for 2018 compared with 2017:
 
 
Revenues
2017
 
$
2,885.2

Increase in 2018 from:
 
 
Unit volume and product mix
 
94.6

Maximal revenues
 
48.9

Parts
 
36.2

Unit price
 
35.4

Foreign currency
 
29.5

Bolzoni revenues
 
23.7

Other
 
12.3

Nuvera revenues
 
8.6

2018
 
$
3,174.4


Revenues increased 10.0% to $3,174.4 million in 2018 from $2,885.2 million in 2017. The increase was mainly due to higher unit and parts volume, favorable currency movements and improved pricing to offset material cost increases in the lift truck business. In addition, the acquisition of Maximal and increased Bolzoni revenues also contributed to the improvement in revenues.

Revenues in the Americas increased primarily as a result of increased unit shipments. Revenues increased primarily from higher sales of Class 4 and Class 5 internal combustion engine lift trucks, including the XT/MX standard truck and Big Trucks. In addition, increased parts volume and improved pricing to offset material cost increases also contributed to the increase in America's revenues.

EMEA's revenues increased mainly as a result of favorable currency movements of $36.6 million from the translation of sales into U.S. dollars and increased parts volume and improved pricing to offset material cost increases.


19


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


Revenues in JAPIC increased primarily as a result of the acquisition of Maximal, higher unit and parts volume, and favorable currency movements of $1.9 million from the translation of sales into U.S. dollars.

Bolzoni's revenues increased mainly as a result of higher volume in the EMEA market and favorable foreign currency movements of $10.2 million.

During the fourth quarter of 2018, Nuvera recognized revenue which had previously been deferred related to battery box replacement ("BBR") units due to the inability to estimate total future warranty costs. The BBRs are new technology and the design of the product continues to evolve. The Company determined sufficient data was available in the fourth quarter of 2018 to reasonably estimate the future costs related to the sale of BBR units, including warranty costs, which were also recorded during the fourth quarter of 2018.
The following table identifies the components of change in operating profit for 2018 compared with 2017:
 
Operating Profit
2017
$
74.1

Increase (decrease) in 2018 from:
 
Lift truck selling, general and administrative expenses
(31.5
)
Lift truck gross profit
(10.6
)
Nuvera operations
3.7

Bolzoni operations
3.1

2018
$
38.8

The Company recognized operating profit of $38.8 million in 2018 compared with $74.1 million in 2017. The decrease in operating profit was mainly due to an increase in lift truck selling, general and administrative expenses primarily related to employee-related costs for sales and development of new products and the acquisition of Maximal in 2018. Lift truck gross profit decreased mainly as a result of higher material and manufacturing costs, partially offset by improved pricing and higher unit and parts shipments in 2018.

Operating profit in the Americas decreased primarily as a result of lower gross profit and higher selling, general and administrative expenses. The decrease in gross profit was mainly due to material and freight cost inflation and tariffs, net of price increases. The Americas implemented price increases during the first half of the year to offset higher than planned material cost inflation and aluminum and steel tariffs. However, operating results continue to reflect the lag of a $25.7 million shortfall in 2018 between fully realizing those price increases and when the tariffs and material cost increases were first realized. Selling, general and administrative expenses increased mainly from higher employee-related costs for sales and development of new products, as well as higher acquisition-related expenses.

EMEA's operating profit was flat due to higher gross profit from favorable currency movements of $12.3 million and improved pricing, which was partially offset by higher material and manufacturing cost inflation. The increase in gross profit was offset by higher selling, general and administrative expenses, including $2.6 million of unfavorable foreign currency movements and higher sales costs to support the Company's strategic initiatives.

The operating loss in JAPIC increased mainly as a result of increased selling, general and administrative expenses primarily from expenses incurred at Maximal since the date of acquisition and higher sales costs to support the Company's strategic initiatives.

Bolzoni's operating profit improved primarily due to higher gross profit, partially offset by higher selling, general and administrative expenses.

Nuvera's operating loss decreased in 2018 from 2017 primarily due to higher product development funding from third-party customers and the absence of the 2017 impairment charge of $4.9 million on Nuvera's long-lived assets. This was partially offset by higher development and production start-up expenses for its third-party development agreements.


20


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


The Company recognized net income attributable to stockholders of $34.7 million in 2018 compared with $48.6 million in 2017. The decrease was primarily the result of lower operating profit, the effect of the favorable HYGFS equity income in 2017 related to the Tax Cuts and Jobs Act (the "Tax Reform Act") and unfavorable mark-to-market adjustments on an equity investment in a third-party. This decrease was partially offset by changes in discrete tax adjustments in the 2018 compared with 2017. See "Financial Review - Income Taxes" and Note 7 to the consolidated financial statements in this Annual Report on Form 10-K for further discussion of income taxes.
2017 Compared with 2016
The following table identifies the components of change in revenues for 2017 compared with 2016:
 
 
Revenues
2016
 
$
2,569.7

Increase (decrease) in 2017 from:
 
 
Unit volume and product mix
 
206.5

Bolzoni revenues
 
 
First quarter 2017
$
41.6

 
Increase in comparable periods
20.0

61.6

Parts
 
25.7

Unit price
 
23.1

Foreign currency
 
12.4

Nuvera revenues
 
1.2

Other
 
(15.0
)
2017
 
$
2,885.2


Revenues increased 12.3% to $2,885.2 million in 2017 from $2,569.7 million in 2016. The increase was mainly attributable to higher unit and parts volumes and a decrease in deal-specific pricing in the lift truck business in 2017 compared with 2016.

Revenues in the Americas increased in 2017 from 2016 primarily as a result of increased unit shipments of higher-priced trucks. Revenues increased primarily from sales of the Company's new Class 5 internal combustion engine standard truck and increased sales of higher-capacity, 3.5 to 8 ton, Class 5 trucks, as well as Class 1 and Class 2 electric trucks. In addition, a decrease in deal-specific pricing and an increase in parts sales also contributed to the increase in revenues in 2017 compared with 2016.

EMEA's revenues improved in 2017 from 2016 mainly as a result of increased unit shipments primarily related to shipments of the new Class 5 internal combustion engine standard truck and an increase in shipments of Class 1 electric-rider trucks.
The following table identifies the components of change in operating profit for 2017 compared with 2016:
 
Operating Profit
2016
$
32.9

Increase (decrease) in 2017 from:
 
Lift truck gross profit
55.4

Bolzoni operations
6.5

Nuvera operations
(2.4
)
Lift truck selling, general and administrative expenses
(18.3
)
2017
$
74.1

The Company recognized operating profit of $74.1 million in 2017 compared with $32.9 million in 2016. The increase in operating profit was primarily due to higher lift truck gross profit, partially offset by an increase in selling, general and

21


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


administrative expenses. The increase in the lift truck gross profit was primarily due to higher unit shipments and related production efficiencies as well as improved pricing, net of material cost inflation.

Operating profit in the Americas increased in 2017 compared with 2016 primarily as a result of improved gross profit mainly due to higher unit shipments of higher-priced lift trucks and related production efficiencies, as well as improved pricing, net of material cost inflation. In addition, selling, general and administrative expenses in the Americas increased in 2017 compared with the 2016 primarily due to higher employee-related costs and increased costs for development and marketing of new products, partially offset by lower acquisition-related costs.

Operating profit in EMEA increased in 2017 compared with 2016 as a result of improved gross profit partially offset by higher selling, general and administrative expenses mainly from higher marketing and employee-related costs. Gross profit improved primarily from higher unit shipments and the favorable impact of foreign currency movements of $4.4 million. The improvement was partially offset by material cost inflation.

Bolzoni's operating profit improved in 2017 from 2016 primarily due to the absence of $2.7 million of one-time purchase accounting adjustments recorded in 2016 and higher gross profit from higher sales in the comparable second, third and fourth quarters of 2017 compared with 2016. Operating profit in the first quarter of 2017 was $2.3 million.

During 2017, Nuvera's operating loss increased $2.4 million compared with 2016, mainly due to an impairment charge of $4.9 million recorded in 2017 on Nuvera's long-lived assets. Increased employee-related costs, professional fees and other general operating expenses also contributed to the increase in operating loss. These items were partially offset by lower product development and production start-up expenses. See Note 12 and Note 13 to the consolidated financial statements in this Annual Report on Form 10-K for further discussion of the impairment charge.

The Company recognized net income attributable to stockholders of $48.6 million in 2017 compared with $42.8 million in 2016. The increase was primarily the result of the increase in lift truck operating profit and $19.8 million of favorable HYGFS equity income in 2017 related to the Tax Reform Act, which is reflected in “Income from Unconsolidated Affiliates” in the Consolidated Statement of Operations. These items were partially offset by income tax expense of $38.2 million in 2017 due to the Tax Reform Act. See "Financial Review - Income Taxes" and Note 7 to the consolidated financial statements in this Annual Report on Form 10-K for further discussion of income taxes.

Income taxes
The income tax provision includes U.S. federal, state and local, and non-U.S. income taxes. In determining the effective income tax rate, the Company analyzes various factors, including annual earnings, the laws of taxing jurisdictions in which the earnings were generated, the impact of state and local income taxes, the ability to use tax credits, net operating loss and capital loss carryforwards, and available tax planning alternatives. Discrete items, including the effect of changes in tax laws, tax rates, and certain items with respect to valuation allowances or other unusual or non-recurring tax adjustments are reflected in the interim period in which they occur.
Deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences that exist between the financial statement carrying value of assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards on a taxing jurisdiction basis. The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which it expects the temporary differences to be recovered or paid.
The authoritative guidance for income taxes requires a reduction of the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not (defined as a likelihood of more than 50%) such assets will not be realized. The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the Company's financial statements or tax returns and future profitability. The Company's accounting for deferred tax consequences represents its best estimate of those future events. Changes in the Company's estimates, due to unanticipated events or otherwise, could have a material effect on its financial condition and results of operations. The Company continually evaluates its deferred tax assets to determine if a valuation allowance is required.
On December 22, 2017, the President of the United States signed into law the Tax Reform Act. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate income tax rate

22


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


from 35% to 21% effective January 1, 2018, repealing the deduction for domestic production activities, allowing the immediate expensing of certain qualified capital expenditures, implementing a territorial tax system and imposing a one-time transition tax on certain unremitted earnings of non-U.S. subsidiaries. As a result of the Tax Reform Act in 2017, the Company recorded provisional tax effects of $38.2 million, comprised of $33.1 million of tax expense due to the transition tax on the unremitted earnings and profits of non-U.S. subsidiaries and $5.1 million of tax expense due to the effects on the Company’s deferred tax assets and liabilities as of December 31, 2017. The Company has since finalized its calculation of earnings and profits, including the amounts held in cash or other specified assets and its calculation of available foreign tax credits consistent with the additional regulatory guidance issued during 2018 resulting in a reduction in tax expense of $4.4 million which was recorded during 2018.

After the utilization of existing tax credits, the Company will pay cash taxes, including state income taxes, of $17.6 million with respect to the transition tax payable over an installment period of eight years. As a result of the Tax Reform Act, no additional income taxes or withholding taxes have been provided for any undistributed foreign earnings, nor any additional outside basis differences inherent in these entities, as these amounts continue to be indefinitely reinvested in non-U.S. operations.
A reconciliation of the consolidated federal statutory and reported income tax is as follows for the years ended December 31: 
 
 
2018
 
2017
 
2016
Income before income taxes
 
$
36.6

 
$
93.8

 
$
38.3

Statutory taxes at 21% (35% in 2017 and 2016)
 
$
7.7

 
$
32.8

 
$
13.4

Permanent adjustments:
 
 
 
 
 
 
Federal income tax credits
 
(2.9
)
 
(1.6
)
 
(1.7
)
Non-U.S. rate differences
 
(2.3
)
 
(7.8
)
 
(9.0
)
Equity interest earnings
 
(1.7
)
 
(8.1
)
 
(2.2
)
State income taxes
 
0.6

 
1.1

 
0.1

Valuation allowance
 
3.0

 
3.4

 
2.4

Global intangible low-taxed income
 
1.2

 

 

Other
 
1.0

 
(0.2
)
 
0.6

 
 
$
(1.1
)
 
$
(13.2
)
 
$
(9.8
)
Discrete items:
 
 
 
 
 
 
Tax Reform Act
 
(4.4
)
 
38.2

 

Provision to return adjustments
 
(0.6
)
 
0.6

 
(1.9
)
Valuation allowance
 

 
(3.3
)
 
(2.6
)
Sale of non-U.S. investment
 

 
(9.1
)
 
(1.9
)
Other
 
0.7

 
(1.1
)
 
(1.2
)
 
 
$
(4.3
)
 
$
25.3

 
$
(7.6
)
Income tax provision (benefit)
 
$
2.3

 
$
44.9

 
$
(4.0
)
Reported income tax rate
 
6.3
%
 
47.9
%
 
n.m.

n.m. - not meaningful
The Company's effective income tax rate differs from the U.S. federal statutory tax rate primarily as a result of federal research and energy credits, income taxed in non-U.S. jurisdictions, equity interest earnings and changes in valuation allowances primarily in non-U.S. jurisdictions.
In addition, the Company recognized the effect of the Tax Reform Act as discrete adjustments. The effect of other discrete items on the reported income tax rate was as follows:

During 2017, the Company recognized a tax benefit of $9.1 million and a tax expense of $1.4 million for unrecognized tax benefits from an internal sale of a subsidiary between consolidated companies resulting in the repatriation of non-U.S.

23


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


accumulated earnings taxed at higher rates. In addition, the Company settled various federal obligations in Brazil through the utilization of its federal net operating loss carryforwards for which a valuation allowance was previously provided. As a result of the utilization of the underlying deferred tax assets, the Company released the associated valuation allowance previously provided of $4.7 million. This was partly offset by a $1.6 million valuation allowance provided against deferred tax assets in China where the Company has determined that such deferred tax assets no longer meet the more likely than not standard for realization.

During 2016, the Company received a notice from the Italian Tax Authority approving the transfer of certain tax losses as part of an internal restructuring. As a result, the Company determined it is more likely than not that the deferred tax asset for such losses would be realized in the foreseeable future and released the valuation allowance previously provided. The Company also recognized tax benefits from provision to return adjustments primarily related to a U.S. tax deduction for manufacturing activities and adjustments for the taxation of certain foreign earnings and a tax benefit from an internal sale of a subsidiary between affiliated companies resulting in the repatriation of non-U.S. accumulated earnings which triggered a currency loss for U.S. tax purposes.

Other items during 2016 include a tax benefit of $4.0 million. As a result of the Bolzoni acquisition, the Company changed its previous reinvestment assertion; and consequently, all of the earnings of its European operations are now considered permanently reinvested and the previously provided deferred tax liability is no longer required. In addition, the Company recognized tax expense of $1.6 million related to non-deductible acquisition expenses and tax expense of $2.1 million in net additions for unrecognized tax benefits.

See Note 7 to the consolidated financial statements in this Annual Report on Form 10-K for further discussion of income taxes.

LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following tables detail the change in cash flow for the years ended December 31:
 
2018
 
2017
 
Change
Operating activities:
 
 
 
 
 
Net income
$
34.3

 
$
48.9

 
$
(14.6
)
Depreciation and amortization
44.0

 
42.8

 
1.2

Stock-based compensation
5.7

 
8.8

 
(3.1
)
Impairment of long-lived assets

 
4.9

 
(4.9
)
Dividends from unconsolidated affiliates
22.2

 
2.8

 
19.4

Other
(2.4
)
 
0.7

 
(3.1
)
Working capital changes, excluding the effect of business acquisitions
(36.2
)
 
55.8

 
(92.0
)
Net cash provided by operating activities
67.6

 
164.7

 
(97.1
)
Investing activities:
 
 
 
 
 
Expenditures for property, plant and equipment
(38.8
)
 
(41.0
)
 
2.2

Proceeds from the sale of property, plant and equipment
5.9

 
1.3

 
4.6

Business acquisitions, net of cash acquired
(78.0
)
 
(1.0
)
 
(77.0
)
Investments in equity securities

 
(5.6
)
 
5.6

Purchase of noncontrolling interest

 
(1.0
)
 
1.0

Net cash used for investing activities
(110.9
)
 
(47.3
)
 
(63.6
)
 
 
 
 
 
 
Cash flow before financing activities
$
(43.3
)
 
$
117.4

 
$
(160.7
)


24


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


Net cash provided by operating activities decreased $97.1 million in 2018 compared with 2017, primarily as a result of the change in working capital items and the decrease in net income, partially offset by increased dividends from unconsolidated affiliates mainly due to the one-time benefit at HYGFS resulting from the Tax Reform Act. The change in working capital was primarily attributable to accounts payable in the Americas returning to normalized levels in 2018 following an unplanned systems-related acceleration of supplier payments in December 2016 and higher inventory levels, somewhat offset by the collection of KNSN Pipe & Pile Company Limited ("KNSN") receivables in June 2018 at Maximal. See Note 20 to the consolidated financial statements in this Annual Report on Form 10-K for further discussion of the Maximal acquisition.

The change in net cash used for investing activities during 2018 compared with 2017 is mainly the result of the acquisition of Maximal in the second quarter of 2018.
 
2018
 
2017
 
Change
Financing Activities:
 
 
 
 
 
Net addition (reduction) of long-term debt and revolving credit agreements
$
(65.7
)
 
$
78.0

 
$
(143.7
)
Cash dividends paid
(20.4
)
 
(19.8
)
 
(0.6
)
Financing fees paid
(0.6
)
 
(4.7
)
 
4.1

Other
(0.9
)
 
(0.4
)
 
(0.5
)
Net cash provided by (used for) financing activities
$
(87.6
)
 
$
53.1

 
$
(140.7
)

The change in net cash provided by (used for) financing activities of $140.7 million in 2018 compared with 2017 was primarily related to the repayment of debt at Maximal and the Term Loan (as defined below) in 2018. The increase in 2017 was due to borrowings under the Term Loan, partially offset by repayments of borrowings under the Facility (as defined below) during 2017, primarily due to the unplanned systems-related acceleration of supplier payments in December 2016.
Financing Activities

The Company has a $200.0 million secured, floating-rate revolving credit facility (the "Facility") that expires in April 2022. There were $10.0 million of borrowings outstanding under the Facility at December 31, 2018. The availability under the Facility at December 31, 2018 was $185.9 million, which reflects reductions of $4.1 million for letters of credit and other restrictions. The Facility consists of a U.S. revolving credit facility in the amount of $120.0 million and a non-U.S. revolving credit facility of $80.0 million. The Facility can be increased up to $300.0 million, subject to limits in the Term Loan (defined below), over the term of the agreement in minimum increments of $10.0 million subject to certain conditions. The obligations under the Facility are generally secured by a lien on the working capital assets of the borrowers in the Facility, which include but are not limited to, cash and cash equivalents, accounts receivable and inventory and a second lien on the Term Loan Collateral (defined below). The approximate book value of assets held as collateral under the Facility was $950 million as of December 31, 2018.
    
Borrowings bear interest at a floating rate based on a base rate or LIBOR, as defined in the Facility, plus an applicable margin. The applicable margins, as of December 31, 2018, for U.S. base rate loans and LIBOR loans were 0.25% and 1.25%, respectively. The applicable margin, as of December 31, 2018, for non-U.S. base rate loans and LIBOR loans was 1.25%. The applicable LIBOR interest rates under the Facility on December 31, 2018 were 2.44% and 1.25%, respectively, for the U.S. and non-U.S. facility including the applicable floating rate margin. The Facility also required the payment of a fee of 0.350% per annum on the unused commitment as of December 31, 2018.

The Facility includes restrictive covenants, which, among other things, limit additional borrowings and investments of the Company and its subsidiaries subject to certain thresholds, as defined in the Facility, and limits the payment of dividends. If availability for both total and U.S. revolving credit facilities on a pro forma basis, is greater than fifteen percent and less than or equal to twenty percent, the Company may pay dividends subject to achieving a minimum fixed charge coverage ratio of 1.00 to 1.00, as defined in the Facility. If the availability is greater than twenty percent for both total and U.S. revolving credit facilities on a pro forma basis, the Company may pay dividends without any minimum fixed charge coverage ratio requirement. The Facility also requires the Company to achieve a minimum fixed charge coverage ratio in certain circumstances in which total excess availability is less than ten percent of the total commitments under the Facility or excess

25


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


availability under the U.S. revolving credit facility is less than ten percent of the U.S. revolver commitments, as defined in the Facility. At December 31, 2018, the Company was in compliance with the covenants in the Facility.

In 2017, the Company entered into an agreement for a $200.0 million term loan (the "Term Loan"), which matures in May 2023. The Term Loan requires quarterly principal payments on the last business day of each March, June, September and December in an amount equal to $2.5 million. Payments commenced in September 2017 and the final principal repayment is due on May 30, 2023. The Company may also be required to make mandatory prepayments, in certain circumstances, as provided in the Term Loan. At December 31, 2018, there was $185.0 million of principle outstanding under the Term Loan which has been reduced in the consolidated balance sheet by $3.7 million of discounts and unamortized deferred financing fees.

The obligations under the Term Loan are generally secured by a first priority lien on the present and future shares of capital stock, material real property, fixtures and general intangibles consisting of intellectual property (collectively, the "Term Loan Collateral") and a second priority lien on the remaining collateral of the U.S. borrowers in the Facility. The approximate book value of assets held as collateral under the Term Loan was $610 million as of December 31, 2018.

Borrowings under the Term Loan bear interest at a floating rate, which can be a base rate or Eurodollar rate, as defined in the Term Loan, plus an applicable margin. The applicable margin, as provided in the Term Loan, is 2.25% for U.S. base rate loans and 3.25% for Eurodollar loans. The interest rate on the amount outstanding under the Term Loan at December 31, 2018 was 5.77%. In addition, the Term Loan includes restrictive covenants, which, among other things, limit additional borrowings and investments of the Company subject to certain thresholds, as provided in the Term Loan. The Term Loan limits the payment of regularly scheduled dividends and other restricted payments to $50.0 million in any fiscal year, unless the consolidated total net leverage ratio, as defined in the Term Loan, does not exceed 1.75 to 1.00 at the time of the payment. At December 31, 2018, the Company was in compliance with the covenants in the Term Loan.

The Company incurred fees and expenses of $0.6 million, $4.7 million and 1.7 million in 2018, 2017 and 2016, respectively. These fees related to the amendment to the Facility and entry into the Term Loan. These fees were deferred and are being amortized as interest expense over the term of the applicable debt agreements. Fees related to the Term Loan are presented as a direct deduction of the corresponding debt.

The Company had other debt outstanding, excluding capital leases, of approximately $92.9 million at December 31, 2018. In addition to the excess availability under the Facility, the Company had remaining availability of $18.3 million related to other non-U.S. revolving credit agreements.

The Company believes funds available from cash on hand, the Term Loan, the Facility, other available lines of credit and operating cash flows will provide sufficient liquidity to meet its operating needs and commitments during the next twelve months and until the expiration of the Facility in April 2022.

26


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


Contractual Obligations, Contingent Liabilities and Commitments
Following is a table summarizing the contractual obligations as of December 31, 2018:
 
Payments Due by Period
Contractual Obligations
Total
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
Term Loan
$
185.0

 
$
10.0

 
$
10.0

 
$
10.0

 
$
10.0

 
$
145.0

 
$

Variable interest payments on Term Loan
40.2

 
10.2

 
9.5

 
8.9

 
8.4

 
3.2

 

Revolving credit agreements
13.3

 
13.3

 

 

 

 

 

Variable interest payments on revolving credit agreements
1.3

 
1.3

 

 

 

 

 

Other debt
89.6

 
62.3

 
16.8

 
4.7

 
5.6

 
0.2

 

Variable interest payments on other debt
2.7

 
1.8

 
0.6

 
0.2

 
0.1

 

 

Capital lease obligations including principal and interest
18.2

 
7.1

 
6.0

 
3.4

 
1.0

 
0.7

 

Operating leases
103.9

 
22.2

 
18.1

 
14.0

 
11.2

 
8.2

 
30.2

Tax Reform Act transition tax liability
13.9

 

 
0.7

 
1.4

 
1.4

 
2.6

 
7.8

Purchase and other obligations
617.9

 
608.0

 
1.1

 
2.0

 
3.1

 

 
3.7

Total contractual cash obligations
$
1,086.0

 
$
736.2

 
$
62.8

 
$
44.6

 
$
40.8

 
$
159.9

 
$
41.7


After the utilization of existing tax credits, the Company will pay total cash taxes, including state income taxes, of $17.6 million with respect to the transition tax payable over an installment period of eight years. As a result of the Tax Reform Act, no additional income taxes or withholding taxes have been provided for any undistributed foreign earnings, nor any additional outside basis differences inherent in these entities, as these amounts continue to be indefinitely reinvested in non-U.S. operations.
The Company has a long-term liability of approximately $20.5 million for unrecognized tax benefits, including interest and penalties, as of December 31, 2018. At this time, the Company is unable to make a reasonable estimate of the timing of payments due to, among other factors, the uncertainty of the timing and outcome of the Company's audits.
An event of default, as defined in the agreements governing the Facility, the Term Loan, other debt agreements, and in operating and capital lease agreements, could cause an acceleration of the payment schedule. No such event of default has occurred or is anticipated under these agreements.
The Company's interest payments are calculated based upon the anticipated payment schedule and the December 31, 2018 applicable rates and applicable margins as described in the Facility and other debt agreements. A 1/8% increase in the LIBOR rate would increase the Company's estimated total interest payments on debt by $0.2 million.
The purchase and other obligations are primarily for accounts payable, open purchase orders and accrued payroll and incentive compensation.

Pension funding can vary significantly each year due to plan amendments, changes in the market value of plan assets, legislation and the Company's funding decisions to contribute any excess above the minimum legislative funding requirements. As a result, pension funding has not been included in the table above. Pension benefit payments are made from assets of the pension plans. The Company expects to contribute approximately $0.8 million to its non-U.S. pension plans in 2019. No contributions to the Company's U.S. pension plans are expected in 2019.

In addition, the Company has recourse and repurchase obligations with a maximum undiscounted potential liability of $192.7 million at December 31, 2018. Recourse and repurchase obligations primarily represent contingent liabilities assumed by the Company to support financing agreements made between the Company's customers and third-party finance companies for the customer’s purchase of lift trucks from the Company. For these transactions, the Company or a third-party finance company retains a perfected security interest in the lift truck, such that the Company would take possession of the lift truck in the event it would become liable under the terms of the recourse and repurchase obligations. Generally, these commitments are due

27


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


upon demand in the event of default by the customer. The security interest is normally expected to equal or exceed the amount of the commitment. To the extent the Company would be required to provide funding as a result of these commitments, the Company believes the value of its perfected security interest and amounts available under existing credit facilities are adequate to meet these commitments in the foreseeable future.
The amount of the recourse or repurchase obligations changes over time as obligations under existing arrangements expire and new obligations arise in the ordinary course of business. Losses anticipated under the terms of the recourse or repurchase obligations were not significant at December 31, 2018 and reserves have been provided for such losses in the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. See also “Related Party Transactions” below.
Capital Expenditures
The following table summarizes actual and planned capital expenditures:
 
 
Planned 2019
 
Actual 2018
 
Actual 2017
Lift truck business
 
$
60.3

 
$
31.8

 
$
35.3

Bolzoni
 
8.3

 
4.2

 
4.7

Nuvera
 
10.5

 
2.8

 
1.0

 
 
$
79.1

 
$
38.8

 
$
41.0

Planned expenditures in 2019 are primarily for product development, improvements to information technology infrastructure, improvements at manufacturing locations and manufacturing equipment. The principal sources of financing for these capital expenditures are expected to be internally generated funds and bank financing.
Capital Structure
 
December 31
 
 
 
2018
 
2017
 
Change
Cash and cash equivalents
$
83.7

 
$
220.1

 
$
(136.4
)
Other net tangible assets
601.3

 
527.8

 
73.5

Intangible assets
67.7

 
56.1

 
11.6

Goodwill
108.3

 
59.1

 
49.2

Net assets
861.0

 
863.1

 
(2.1
)
Total debt
(301.5
)
 
(290.7
)
 
(10.8
)
Total equity
$
559.5

 
$
572.4

 
$
(12.9
)
Debt to total capitalization
35
%
 
34
%
 
1
%
RELATED PARTY TRANSACTIONS
See Note 19 to the consolidated financial statements in this Annual Report on Form 10-K for further discussion of related party transactions.


28


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


INVESTOR PERSPECTIVE

The Company is currently undertaking the largest set of transformational programs in the Company’s history. These programs are expected to have a very significant impact on the Company’s competitiveness, market position and economic performance over the next three to five years.

For some time, the Company has been focused on six strategic initiatives:
1.Provide the lowest cost of ownership, while enhancing productivity for customers.
2.Be the leader in the delivery of industry- and customer-focused solutions.
3.Be the leader in independent distribution.
4.Grow in emerging markets.
5.Be the leader in the attachments business.
6.Be a leader in fuel cells and their applications.

The projects required to execute fully on these initiatives have been, in general, initiated over the last several years and many are now moving toward completion. Further, many of the projects supporting these strategic initiatives are inter-related and succeeding in one will foster success in others. In total, these projects have required significant up-front expense and capital expenditure investment. The projects cover a very broad range of the Company's activities, including product development, supply chain, IT, manufacturing, sales and marketing for each of the Company’s three major businesses, Lift Truck, Bolzoni and Nuvera.

Over the course of 2017 and 2018, these investments, both expense and capital, increased significantly. Further, investment will continue to be made in 2019 and then generally remain at those levels for the next several years. The return from these investments has started to be realized and is expected to increase over the course of the Company's five-year planning period. In this context, the Lift Truck business income is expected to improve in 2019 over 2018, but results in the first half of the year are expected to be lower than the first half of 2018, and then improve in the second half. Beginning in 2020, further improved results are expected with significant increases through 2023. The Lift Truck business objective is to meet its target of 7% operating profit in this period assuming reasonable market conditions continue. Likewise, Bolzoni’s results are expected to improve in 2019 and in the following years with a target of 7% operating profit. Nuvera’s results are expected to improve moderately in the first three quarters of 2019 with a break-even target for both the fourth quarter and for the 2020 full year. Further, significantly improved earnings are expected at Nuvera in the 2021 to 2023 time period. At each of these three businesses, the investments being undertaken are expected to lead to increased operating profit through higher volume, decreased product costs and improved pricing, partially offset by a higher level of operating expense. Overall, 2019 consolidated operating profit is expected to increase significantly, with the improvement coming in the second half of the year.

The Lift Truck business product programs are expected to lay the groundwork for enhanced market position by providing lower cost of ownership and enhanced productivity for the Company’s customers. At the core of these programs is a new set of modular and scalable product families covering both internal combustion engine and electric trucks, which will provide customers with enhanced flexibility for meeting their application needs combined with the benefit of lowest total cost of ownership. Implementation of these programs are expected to begin in 2020 with the introduction of a new range of counterbalanced trucks, with this range being expanded comprehensively through 2025 to include larger counterbalanced capacities, Big Trucks and warehouse trucks. A further major initiative in product offerings will come from the introduction of trucks manufactured by Maximal, HYG’s new majority-owned joint venture in China. A line of trucks from Maximal has been engineered to provide high quality and reliable utility trucks for global markets and standard trucks for the Chinese market. In addition, Maximal and HYG’s partner in India is expected to expand local production of larger trucks. Further, in early 2019, a new end rider was launched in the North America market, and a new Reach Truck for North America, as well as lower-cost Class 3 walkie and stacker global products are expected to be introduced later in the year. Rough terrain and electrified Big Truck products are being added to the product line-up. To further enhance productivity for customers, the Lift Truck business is developing automation solutions for warehouse trucks, initially in combination with industry partners. Some of these products are already in the market today, but new solutions and customers are expected to be developed progressively over the next several years. The Lift Truck business continues to expand sales of telemetry products and new generations of lift trucks will offer a fully integrated telematics solution. Finally, the Lift Truck business anticipates introducing new fuel cell BBRs for Class 1, 2 and 3 forklift trucks over the next two years that are expected to move the fuel cell BBR business to break-even in 2020.

29


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


The introduction of these new products will lead to significant changes in supply chain sourcing and in the Company’s various manufacturing facilities around the world. Consolidated component volume sourced globally from reliable partners is expected to reduce costs and improve quality as these new products are brought to market over the next two to three years. HYG’s largest manufacturing facilities in Berea, Craigavon, and Greenville are expected to be structured to reduce costs and improve productivity while most other plants will see more modest changes. China production activities are expected to be consolidated at Maximal over the course of 2019.

The Lift Truck business currently has over 290 different forklift models in its range which are supported by the ability to customize these trucks to meet specific customer needs. The modular nature of the new products being introduced will enhance the ability to meet exact customer needs at lowest cost, both at the industry level and at the individual customer level. To ensure the full benefit from these programs, the Lift Truck business has made a substantial expense investment in its sales and marketing organizations to realign teams around industry groupings. Within marketing, industry-focused resources have been added to develop industry strategies. The higher-priority industry strategies have been completed for North America and Europe. All of the strategies are expected to be completed for all countries, or groups of countries, around the world by the end of 2019 but will mature and be enhanced over future years. To support execution of these industry strategies, the Lift Truck business has invested in additional industry-focused sales capabilities to support its dealers. This industry-focused structure has been in place and highly successful in the National Account direct sales program and is now being deployed with the new dealer support teams. These investments are largely in place in North America, and to a lesser degree in EMEA. Additional sales capabilities are expected to be added in other areas around the world over the next two years. In total, the Company believes that these projects will put it in a position to be a leader in the delivery of industry- and customer-focused solutions worldwide.

While the new sales teams will support dealers’ sales efforts, the Company will also continue to upgrade its global dealer capabilities. A core objective is to have dealers that are fully capable of maximizing the potential of the Hyster® and Yale® brands in their territories. These dealers will be supported by a commitment to helping dealers strengthen the excellence of their activities in all areas of their business including leadership, sales, parts, service, rental, leasing and remarketing. To help these programs have maximum impact, the Company will be investing over the next few years in enhanced digital customer experience systems. Taken together, these initiatives amount to a new, uniquely competitive way of serving the markets around the world.

Bolzoni is also pursuing very aggressive projects to expand its global market position. This includes strengthening the Bolzoni’s ability to serve the North America market by taking responsibility for HYG’s Sulligent plant, where it will manufacture attachments and also continue the plant’s support of the Lift Truck business through the sale of cylinders and various other components. Bolzoni will phase out production at its current Homewood, Illinois facility, but intends to maintain a distribution center and certain other operations in that area. There is a large opportunity for growth in the North America market. To help capture this, Bolzoni plans to introduce a broader range of locally produced attachments available with shorter lead times to serve its customer base. Bolzoni also has plans to increase its sales, marketing and product support capabilities in North America. In addition, it has developed a standard product line sourced from one of its factories in China, which will continue to be expanded. Bolzoni’s current outstanding premium line of products coupled with these standard products and an industry-focused strategy are expected to give Bolzoni the ability to increase its sales significantly in the Americas, JAPIC and EMEA regions. Bolzoni’s results have been improving on a progressive basis since its acquisition three years ago. These new programs are expected to increase the Company’s market position and profitability, especially over the next three to four years.

Nuvera is approaching the point where it will move from being a venture business focused on commercializing leading technology to a mature, product-based company serving not only the forklift truck market, but also heavy-duty applications such as buses, trucks and applications in the automotive sector with an expanding line of developed products. Nuvera expects its core technology to move to a new generation of fuel cell stack design over the next year with broad application in each of these markets. Quality and cost of fuel cell engines have been improving and are expected to reach target objectives over the next two years. With the transfer of the responsibility for development of non-fuel-cell engine components and the overall assembly of BBRs to the Lift Truck business, Nuvera will focus entirely on fuel cell stacks and engines. To enhance its cost base, Nuvera continues to work on standardizing its products, developing lower cost suppliers and automating various elements of stack production. To help sharpen its focus on fuel cell stacks and engines, Nuvera sold its hydrogen-generating PowerTap® business to a third-party, OneH2, Inc. ("OneH2"), in exchange for a note and a minority ownership interest in

30


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


OneH2. OneH2 has developed an important option for hydrogen fuel supply for forklift truck fuel cell users. In overview, Nuvera’s objective is to reach break-even in both the fourth quarter of 2019 and the full year of 2020, with a move toward target profitability over the following three years.

In summary, the Company believes it is approaching an inflection point in its business. While the early part of 2019 is expected to reflect continued investment in all of these programs, the second half of 2019 is expected to be significantly improved in comparison to the second half of 2018. The Company's efforts to find offsets to the tariff-driven unprecedented material cost inflation witnessed in 2018 will mature during 2019, and efforts to abate the most critical supplier issues, which are still having an impact on production, are underway with most expected to be resolved by mid-year. The current lift truck backlog contains certain deal-specific pricing agreements at less than target margins to gain targeted accounts and for which margin improvement efforts will take some time to mature. These deals will have an impact on profitability, mainly in the first half of the year. Generally, margins are expected to recover fully from the 2018 material cost inflation and the heavily discounted deals by the third and fourth quarters of 2019. In 2020 and 2021, a considerable portion of the new projects outlined above will have reached completion for all three companies and the Company believes the full impact of these programs can lead to profitability improvements for a number of years to come. Finally, the remainder of the programs are expected to come to fruition in 2022 and 2023, with a few, particularly those involving dealer structure and excellence, being more in the nature of continuous improvement rather than projects which reach maturity at a given time. However, the absolute level of profitability will reflect actual market demand levels. The Company is currently forecasting strong but moderating forklift market levels and a resolution to Brexit in a way which does not significantly harm the Company’s business prospects.

The Company believes that investors who are focused on mid-term business improvement in market position and profitability will find that the Company’s focus is consistent with those investment objectives.

RECENTLY ISSUED ACCOUNTING STANDARDS

For information regarding recently issued accounting standards refer to Note 2 to the Consolidated Financial Statements in this Form 10-K.

EFFECTS OF FOREIGN CURRENCY

The Company operates internationally and enters into transactions denominated in foreign currencies. As a result, the Company is subject to the variability that arises from exchange rate movements. The effects of foreign currency fluctuations on revenues, operating profit and net income are addressed in the previous discussions of operating results. The Company's use of foreign currency derivative contracts is discussed in Item 7A, "Quantitative and Qualitative Disclosures About Market Risk,” of this Form 10-K.

FORWARD-LOOKING STATEMENTS

The statements contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere throughout this Annual Report on Form 10-K that are not historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are made subject to certain risks and uncertainties, which could cause actual results to differ materially from those presented. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Among the factors that could cause plans, actions and results to differ materially from current expectations are, without limitation: (1) reduction in demand for lift trucks, attachments and related aftermarket parts and service on a global basis, (2) delays in delivery or increases in costs, including transportation costs or the imposition of tariffs, of raw materials or sourced products and labor or changes in or unavailability of quality suppliers, (3) delays in manufacturing and delivery schedules, (4) the successful commercialization of Nuvera's technology, (5) customer acceptance of pricing, (6) the political and economic uncertainties in the countries where the Company does business, (7) the ability of dealers, suppliers and end-users to obtain financing at reasonable rates, or at all, as a result of current economic and market conditions, (8) exchange rate fluctuations and monetary policies and other changes in the regulatory climate in the countries in which the Company operates and/or sells products, (9) bankruptcy of or loss of major

31


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)


dealers, retail customers or suppliers, (10) customer acceptance of, changes in the costs of, or delays in the development of new products, (11) introduction of new products by, or more favorable product pricing offered by, competitors, (12) product liability or other litigation, warranty claims or returns of products, (13) the effectiveness of the cost reduction programs implemented globally, including the successful implementation of procurement and sourcing initiatives, (14) changes mandated by federal, state and other regulation, including tax, health, safety or environmental legislation, (15) unfavorable effects of geopolitical and legislative developments on global operations, including without limitation, the United Kingdom's exit from the European Union, the entry into new trade agreements and the imposition of tariffs and/or economic sanctions, (16) the Company may not be able to successfully integrate Maximal’s operations and employees, and (17) delays in or increased costs of moving the attachment manufacturing from Homewood, Illinois to Sulligent, Alabama.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company has entered into certain financing arrangements that require interest payments based on floating interest rates. As such, the Company's financial results are subject to changes in the market rate of interest. The Company has entered into interest rate swap agreements to reduce the exposure to changes in the market rate of interest. The Company does not enter into interest rate swap agreements for trading purposes. Terms of the interest rate swap agreements require the Company to receive a variable interest rate and pay a fixed interest rate. See also Note 9 to the Consolidated Financial Statements in this Annual Report on Form 10-K.
For purposes of risk analysis, the Company uses sensitivity analysis to measure the potential loss in fair value of financial instruments sensitive to changes in interest rates. The Company assumes that a loss in fair value is either a decrease to its assets or an increase to its liabilities. The fair value of the Company's interest rate swap agreements was a net asset of $1.6 million at December 31, 2018. A hypothetical 10% decrease in interest rates would cause a decrease in the fair value of interest rate swap agreements and the resulting fair value would be a liability of $1.5 million.
FOREIGN CURRENCY EXCHANGE RATE RISK
The Company operates internationally and enters into transactions denominated in foreign currencies. As such, the Company's financial results are subject to the variability that arises from exchange rate movements. The Company uses forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies and not for trading purposes. These contracts generally mature within 36 months and require the companies to buy or sell euros, U.S. dollars, Japanese yen, British pounds, Swedish kroner, Mexican pesos, Chinese renminbi, Brazilian real and Australian dollars for its functional currency at rates agreed to at the inception of the contracts. The fair value of these contracts was a net liability of $19.5 million at December 31, 2018. See also Note 9 to the Consolidated Financial Statements in this Annual Report on Form 10-K.
For purposes of risk analysis, the Company uses sensitivity analysis to measure the potential loss in fair value of financial instruments sensitive to changes in foreign currency exchange rates. The Company assumes that a loss in fair value is either a decrease to its assets or an increase to its liabilities. Assuming a hypothetical 10% weakening of the U.S. dollar compared with other foreign currencies at December 31, 2018, the fair value of foreign currency-sensitive financial instruments, which primarily represent forward foreign currency exchange contracts, would be decreased by $7.5 million compared with the fair value at December 31, 2018. It is important to note that the change in fair value indicated in this sensitivity analysis would be somewhat offset by changes in the revaluation of the underlying receivables and payables.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is set forth in the Financial Statements and Supplementary Data contained in Part IV of this Annual Report on Form 10-K and is hereby incorporated herein by reference to such information.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements with accountants on accounting and financial disclosure for the three-year period ended December 31, 2018.

32


Item 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures: An evaluation was carried out under the supervision and with the participation of the Company's management, including the principal executive officer and the principal financial officer, of the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, these officers have concluded that the Company's disclosure controls and procedures were effective.
Management's report on internal control over financial reporting: Management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this evaluation under the framework in Internal Control — Integrated Framework, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2018. The Company's effectiveness of internal control over financial reporting has been audited by Ernst & Young, LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 15 of this Annual Report on Form 10-K and is incorporated herein by reference. Management has excluded Maximal from its assessment of the Company's disclosure controls and procedures because the
Company acquired a majority interest in Maximal on June 1, 2018. As of December 31, 2018, Maximal constituted approximately 9% of the Company's total assets and approximately 2% of the Company's revenues for the year ended December 31, 2018.
Changes in internal control: During the fourth quarter of 2018, there have been no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9B. OTHER INFORMATION
None

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by this Item 10 of Part III will be included in the 2019 Proxy Statement, which information is incorporated herein by reference.
Information regarding the executive officers of the Company is included in this Annual Report on Form 10-K as Item 4A of Part I as permitted by Instruction 3 to Item 401(b) of Regulation S-K.
The Company has adopted a code of ethics applicable to all Company personnel, including the principal executive officer, principal financial officer, principal accounting officer and controller, or other persons performing similar functions. The code of ethics, entitled the “Code of Corporate Conduct,” is posted on the Company's website at www.hyster-yale.com under “Corporate Governance.” Amendments and waivers of the Company's Code of Corporate Conduct for directors or executive officers of the Company, if any, will be disclosed on the Company's website or on a current report on Form 8-K.

Item 11. EXECUTIVE COMPENSATION
Information required by this Item 11 of Part III will be included in the 2019 Proxy Statement, which information is incorporated herein by reference.


33


Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by this Item 12 of Part III will be included in the 2019 Proxy Statement, which information is incorporated herein by reference.
Equity Compensation Plan Information
The following table sets forth information as of December 31, 2018 with respect to our compensation plans (including individual compensation arrangements) under which equity securities are authorized for issuance, aggregated as follows:
Plan Category
 
Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights
 
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
 
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a))
Class A Shares:
 
(a)
 
(b)
 
(c)
Equity compensation plans approved by security holders
 

 
N/A
 
421,785

Equity compensation plans not approved by security holders
 

 
N/A
 

Total
 

 
N/A
 
421,785

Class B Shares:
 
 
 
 
 
 
Equity compensation plans approved by security holders
 

 
N/A
 

Equity compensation plans not approved by security holders
 

 
N/A
 

Total
 

 
N/A
 


Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this Item 13 of Part III will be included in the 2019 Proxy Statement, which information is incorporated herein by reference.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item 14 of Part III will be included in the 2019 Proxy Statement, which information is incorporated herein by reference.

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) The response to Item 15(a)(1) is set forth beginning at page F-1 of this Annual Report on Form 10-K.
(a) (2) The response to Item 15(a)(2) is set forth beginning at page F-47 of this Annual Report on Form 10-K.
(a) (3) Listing of Exhibits — See the exhibit index beginning at page 35 of this Annual Report on Form 10-K.
(b) The response to Item 15(b) is set forth beginning at page 35 of this Annual Report on Form 10-K.

34


EXHIBIT INDEX
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession.
(10) Material Contracts.
10.1
 
10.2
 
10.3
 
10.4
 
10.5