Item 1. Financial Statements
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
JUNE 30
2017
|
|
DECEMBER 31
2016
|
|
|
(In millions, except share data)
|
|
ASSETS
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
239.9
|
|
|
$
|
43.2
|
|
|
Accounts receivable, net
|
386.8
|
|
|
375.3
|
|
|
Inventories, net
|
382.5
|
|
|
352.2
|
|
|
Prepaid expenses and other
|
41.0
|
|
|
39.3
|
|
|
Total Current Assets
|
1,050.2
|
|
|
810.0
|
|
|
Property, Plant and Equipment, Net
|
253.7
|
|
|
255.1
|
|
|
Intangible Assets, Net
|
57.4
|
|
|
56.2
|
|
|
Goodwill
|
55.7
|
|
|
50.7
|
|
|
Deferred Income Taxes
|
38.0
|
|
|
43.9
|
|
|
Investment in Unconsolidated Affiliates
|
55.3
|
|
|
45.9
|
|
|
Other Non-current Assets
|
27.3
|
|
|
25.3
|
|
|
Total Assets
|
$
|
1,537.6
|
|
|
$
|
1,287.1
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
Accounts payable
|
$
|
355.2
|
|
|
$
|
242.4
|
|
|
Accounts payable, affiliates
|
19.7
|
|
|
16.5
|
|
|
Revolving credit facilities
|
3.9
|
|
|
79.0
|
|
|
Current maturities of long-term debt
|
66.1
|
|
|
50.0
|
|
|
Accrued payroll
|
36.6
|
|
|
43.7
|
|
|
Accrued warranty obligations
|
27.4
|
|
|
27.8
|
|
|
Other current liabilities
|
119.5
|
|
|
117.1
|
|
|
Total Current Liabilities
|
628.4
|
|
|
576.5
|
|
|
Long-term Debt
|
230.4
|
|
|
82.2
|
|
|
Self-insurance Liabilities
|
19.3
|
|
|
19.7
|
|
|
Pension Obligations
|
33.5
|
|
|
37.2
|
|
|
Deferred Income Taxes
|
12.6
|
|
|
11.4
|
|
|
Other Long-term Liabilities
|
83.2
|
|
|
89.7
|
|
|
Total Liabilities
|
1,007.4
|
|
|
816.7
|
|
|
Stockholders' Equity
|
|
|
|
|
|
Common stock:
|
|
|
|
|
|
Class A, par value $0.01 per share, 12,537,912 shares outstanding (2016 - 12,466,463 shares outstanding)
|
0.1
|
|
|
0.1
|
|
|
Class B, par value $0.01 per share, convertible into Class A on a one-for-one basis, 3,916,117 shares outstanding (2016 - 3,924,291 shares outstanding)
|
0.1
|
|
|
0.1
|
|
|
Capital in excess of par value
|
318.6
|
|
|
319.6
|
|
|
Treasury stock
|
(32.2
|
)
|
|
(36.9
|
)
|
|
Retained earnings
|
384.9
|
|
|
360.3
|
|
|
Accumulated other comprehensive loss
|
(148.4
|
)
|
|
(179.4
|
)
|
|
Total Stockholders' Equity
|
523.1
|
|
|
463.8
|
|
|
Noncontrolling Interests
|
7.1
|
|
|
6.6
|
|
|
Total Equity
|
530.2
|
|
|
470.4
|
|
|
Total Liabilities and Equity
|
$
|
1,537.6
|
|
|
$
|
1,287.1
|
|
See notes to unaudited condensed consolidated financial statements.
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
SIX MONTHS ENDED
|
|
|
JUNE 30
|
|
JUNE 30
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
(In millions, except per share data)
|
|
Revenues
|
$
|
685.5
|
|
|
$
|
645.6
|
|
|
$
|
1,398.6
|
|
|
$
|
1,249.8
|
|
|
Cost of sales
|
563.8
|
|
|
531.6
|
|
|
1,150.8
|
|
|
1,037.9
|
|
|
Gross Profit
|
121.7
|
|
|
114.0
|
|
|
247.8
|
|
|
211.9
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
103.4
|
|
|
102.6
|
|
|
206.1
|
|
|
190.8
|
|
|
Operating Profit
|
18.3
|
|
|
11.4
|
|
|
41.7
|
|
|
21.1
|
|
|
Other (income) expense
|
|
|
|
|
|
|
|
|
|
Interest expense
|
2.6
|
|
|
2.0
|
|
|
4.4
|
|
|
3.1
|
|
|
Income from unconsolidated affiliates
|
(1.9
|
)
|
|
(1.7
|
)
|
|
(4.0
|
)
|
|
(3.0
|
)
|
|
Other
|
(0.7
|
)
|
|
(0.7
|
)
|
|
(1.3
|
)
|
|
0.3
|
|
|
|
—
|
|
|
(0.4
|
)
|
|
(0.9
|
)
|
|
0.4
|
|
|
Income Before Income Taxes
|
18.3
|
|
|
11.8
|
|
|
42.6
|
|
|
20.7
|
|
|
Income tax provision
|
1.9
|
|
|
3.5
|
|
|
8.1
|
|
|
2.5
|
|
|
Net Income
|
16.4
|
|
|
8.3
|
|
|
34.5
|
|
|
18.2
|
|
|
Net loss attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
Net Income Attributable to Stockholders
|
$
|
16.4
|
|
|
$
|
8.3
|
|
|
$
|
34.5
|
|
|
$
|
18.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings per Share
|
$
|
1.00
|
|
|
$
|
0.51
|
|
|
$
|
2.10
|
|
|
$
|
1.12
|
|
|
Diluted Earnings per Share
|
$
|
0.99
|
|
|
$
|
0.51
|
|
|
$
|
2.09
|
|
|
$
|
1.12
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per Share
|
$
|
0.3025
|
|
|
$
|
0.2950
|
|
|
$
|
0.5975
|
|
|
$
|
0.5800
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Weighted Average Shares Outstanding
|
16.453
|
|
|
16.381
|
|
|
16.435
|
|
|
16.365
|
|
|
Diluted Weighted Average Shares Outstanding
|
16.503
|
|
|
16.420
|
|
|
16.490
|
|
|
16.410
|
|
See notes to unaudited condensed consolidated financial statements.
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
SIX MONTHS ENDED
|
|
|
JUNE 30
|
|
JUNE 30
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
(In millions)
|
|
Net Income
|
$
|
16.4
|
|
|
$
|
8.3
|
|
|
$
|
34.5
|
|
|
$
|
18.2
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
13.0
|
|
|
(2.7
|
)
|
|
20.5
|
|
|
14.6
|
|
|
Unrealized gain on available for sale securities
|
1.4
|
|
|
—
|
|
|
1.4
|
|
|
—
|
|
|
Current period cash flow hedging activity
|
2.5
|
|
|
(2.2
|
)
|
|
7.0
|
|
|
5.5
|
|
|
Reclassification of hedging activities into earnings
|
0.6
|
|
|
(0.7
|
)
|
|
0.7
|
|
|
(0.2
|
)
|
|
Reclassification of pension into earnings
|
0.7
|
|
|
0.4
|
|
|
1.4
|
|
|
1.0
|
|
|
Comprehensive Income
|
$
|
34.6
|
|
|
$
|
3.1
|
|
|
$
|
65.5
|
|
|
$
|
39.1
|
|
|
Other comprehensive (income) loss attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
Foreign currency translation adjustment attributable to noncontrolling interests
|
(0.1
|
)
|
|
1.0
|
|
|
(0.4
|
)
|
|
1.0
|
|
|
Comprehensive Income Attributable to Stockholders
|
$
|
34.5
|
|
|
$
|
4.1
|
|
|
$
|
65.1
|
|
|
$
|
40.2
|
|
See notes to unaudited condensed consolidated financial statements.
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED
|
|
|
JUNE 30
|
|
|
2017
|
|
2016
|
|
|
(In millions)
|
|
Operating Activities
|
|
|
|
|
Net income
|
$
|
34.5
|
|
|
$
|
18.2
|
|
|
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
21.3
|
|
|
17.1
|
|
|
Amortization of deferred financing fees
|
0.6
|
|
|
0.5
|
|
|
Deferred income taxes
|
(1.1
|
)
|
|
1.1
|
|
|
Stock-based compensation
|
3.7
|
|
|
2.7
|
|
|
Dividends from unconsolidated affiliates
|
2.8
|
|
|
5.1
|
|
|
Other non-current liabilities
|
(4.5
|
)
|
|
(2.2
|
)
|
|
Other
|
1.3
|
|
|
(11.5
|
)
|
|
Working capital changes, excluding the effect of business acquisitions:
|
|
|
|
|
|
Accounts receivable
|
1.7
|
|
|
(11.3
|
)
|
|
Inventories
|
(19.1
|
)
|
|
(5.4
|
)
|
|
Other current assets
|
0.9
|
|
|
(9.2
|
)
|
|
Accounts payable
|
103.9
|
|
|
9.0
|
|
|
Other current liabilities
|
(5.7
|
)
|
|
(37.0
|
)
|
|
Net cash provided by (used for) operating activities
|
140.3
|
|
|
(22.9
|
)
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
Expenditures for property, plant and equipment
|
(16.9
|
)
|
|
(17.2
|
)
|
|
Proceeds from the sale of assets
|
0.8
|
|
|
8.7
|
|
|
Investments in equity securities
|
(5.6
|
)
|
|
—
|
|
|
Business acquisitions, net of cash acquired
|
(1.0
|
)
|
|
(107.7
|
)
|
|
Net cash used for investing activities
|
(22.7
|
)
|
|
(116.2
|
)
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
Additions to long-term debt
|
236.3
|
|
|
19.2
|
|
|
Reductions of long-term debt
|
(31.7
|
)
|
|
(20.2
|
)
|
|
Net change to revolving credit agreements
|
(113.4
|
)
|
|
43.3
|
|
|
Cash dividends paid
|
(9.9
|
)
|
|
(9.5
|
)
|
|
Cash dividends paid to noncontrolling interest
|
(0.2
|
)
|
|
(0.2
|
)
|
|
Financing fees paid
|
(5.0
|
)
|
|
(1.6
|
)
|
|
Other
|
(0.1
|
)
|
|
—
|
|
|
Net cash provided by financing activities
|
76.0
|
|
|
31.0
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
3.1
|
|
|
4.5
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
|
|
|
Increase (decrease) for the period
|
196.7
|
|
|
(103.6
|
)
|
|
Balance at the beginning of the period
|
43.2
|
|
|
155.1
|
|
|
Balance at the end of the period
|
$
|
239.9
|
|
|
$
|
51.5
|
|
See notes to unaudited condensed consolidated financial statements.
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
Class B Common Stock
|
Treasury Stock
|
Capital in Excess of Par Value
|
Retained Earnings
|
Foreign Currency Translation Adjustment
|
|
Deferred Gain on AFS Securities
|
Deferred Gain (Loss) on Cash Flow Hedging
|
Pension Adjustment
|
Total Stockholders' Equity
|
Noncontrolling Interests
|
Total Equity
|
|
|
(In millions)
|
|
Balance, January 1, 2016
|
$
|
0.1
|
|
$
|
0.1
|
|
$
|
(42.5
|
)
|
$
|
320.3
|
|
$
|
336.7
|
|
|
$
|
(90.1
|
)
|
|
$
|
—
|
|
|
$
|
(4.0
|
)
|
|
$
|
(59.8
|
)
|
|
$
|
460.8
|
|
|
$
|
1.9
|
|
|
$
|
462.7
|
|
|
Stock-based compensation
|
—
|
|
—
|
|
—
|
|
2.7
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.7
|
|
|
—
|
|
|
2.7
|
|
|
Stock issued under stock compensation plans
|
—
|
|
—
|
|
4.9
|
|
(4.9
|
)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net income (loss)
|
—
|
|
—
|
|
—
|
|
—
|
|
18.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18.3
|
|
|
(0.1
|
)
|
|
18.2
|
|
|
Cash dividends on common stock
|
—
|
|
—
|
|
—
|
|
—
|
|
(9.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9.5
|
)
|
|
—
|
|
|
(9.5
|
)
|
|
Current period other comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
14.6
|
|
|
—
|
|
|
5.5
|
|
|
—
|
|
|
20.1
|
|
|
—
|
|
|
20.1
|
|
|
Reclassification adjustment to net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
1.0
|
|
|
0.8
|
|
|
—
|
|
|
0.8
|
|
|
Acquisition of Bolzoni
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
69.8
|
|
|
69.8
|
|
|
Purchase of noncontrolling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(62.2
|
)
|
|
(62.2
|
)
|
|
Cash dividends paid to noncontrolling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
(0.2
|
)
|
|
Foreign currency translation on noncontrolling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.0
|
)
|
|
(1.0
|
)
|
|
Balance, June 30, 2016
|
$
|
0.1
|
|
$
|
0.1
|
|
$
|
(37.6
|
)
|
$
|
318.1
|
|
$
|
345.5
|
|
|
$
|
(75.5
|
)
|
|
$
|
—
|
|
|
$
|
1.3
|
|
|
$
|
(58.8
|
)
|
|
$
|
493.2
|
|
|
$
|
8.2
|
|
|
$
|
501.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2017
|
$
|
0.1
|
|
$
|
0.1
|
|
$
|
(36.9
|
)
|
$
|
319.6
|
|
$
|
360.3
|
|
|
$
|
(92.0
|
)
|
|
$
|
—
|
|
|
$
|
(12.2
|
)
|
|
$
|
(75.2
|
)
|
|
$
|
463.8
|
|
|
$
|
6.6
|
|
|
$
|
470.4
|
|
|
Stock-based compensation
|
—
|
|
—
|
|
—
|
|
3.7
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.7
|
|
|
—
|
|
|
3.7
|
|
|
Stock issued under stock compensation plans
|
—
|
|
—
|
|
4.7
|
|
(4.7
|
)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
34.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34.5
|
|
|
—
|
|
|
34.5
|
|
|
Cash dividends on common stock
|
—
|
|
—
|
|
—
|
|
—
|
|
(9.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9.9
|
)
|
|
—
|
|
|
(9.9
|
)
|
|
Current period other comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
20.5
|
|
|
1.4
|
|
|
7.0
|
|
|
—
|
|
|
28.9
|
|
|
—
|
|
|
28.9
|
|
|
Reclassification adjustment to net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
|
1.4
|
|
|
2.1
|
|
|
—
|
|
|
2.1
|
|
|
Acquisition of business
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
0.3
|
|
|
Cash dividends paid to noncontrolling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
(0.2
|
)
|
|
Foreign currency translation on noncontrolling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
|
0.4
|
|
|
Balance, June 30, 2017
|
$
|
0.1
|
|
$
|
0.1
|
|
$
|
(32.2
|
)
|
$
|
318.6
|
|
$
|
384.9
|
|
|
$
|
(71.5
|
)
|
|
$
|
1.4
|
|
|
$
|
(4.5
|
)
|
|
$
|
(73.8
|
)
|
|
$
|
523.1
|
|
|
$
|
7.1
|
|
|
$
|
530.2
|
|
See notes to unaudited condensed consolidated financial statements.
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Note 1—Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Hyster-Yale Materials Handling, Inc., a Delaware corporation, and the accounts of Hyster-Yale's wholly owned domestic and international subsidiaries and majority-owned joint ventures (collectively, "Hyster-Yale" or the "Company"). All intercompany accounts and transactions among the consolidated companies are eliminated in consolidation.
The Company, through its wholly owned operating subsidiary, Hyster-Yale Group, Inc. ("HYG"), designs, engineers, manufactures, sells and services a comprehensive line of lift trucks 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, Northern Ireland, Mexico, Italy, the Netherlands, Vietnam, Japan, the Philippines, Brazil and China.
The Company also operates Bolzoni S.p.A. ("Bolzoni"). Bolzoni is a leading worldwide producer 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.
The Company also operates Nuvera Fuel Cells, LLC ("Nuvera"). Nuvera is an alternative-power technology company focused on fuel-cell stacks and engines. Nuvera also supports on-site hydrogen production and dispensing systems that are designed to deliver clean energy solutions to customers.
Investments in Sumitomo NACCO Forklift Co., Ltd. (“SN”), a
50%
-owned joint venture, and HYG Financial Services, Inc. ("HYGFS"), a
20%
-owned joint venture, are accounted for by the equity method. SN operates manufacturing facilities in Japan, the Philippines and Vietnam from which the Company purchases certain components, service parts and lift trucks. Sumitomo Heavy Industries, Ltd. ("Sumitomo") 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 prior to a vote of SN’s board of directors. HYGFS is a joint venture with Wells Fargo Financial Leasing, Inc. (“WF”), formed primarily for the purpose of providing financial services to independent Hyster
®
and Yale
®
lift truck dealers and National Account customers in the United States. National Account customers are large customers with centralized purchasing and geographically dispersed operations in multiple dealer territories. The Company’s percentage share of the net income or loss from these equity investments is reported on the line “Income from unconsolidated affiliates” in the “Other (income) expense” portion of the unaudited condensed consolidated statements of operations.
These financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of the Company as of
June 30, 2017
and the results of its operations for the
three
and
six months ended
June 30, 2017
and
2016
and the results of its cash flows and changes in equity for the
six months ended
June 30, 2017
and
2016
have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2016
.
The accompanying unaudited condensed consolidated balance sheet at
December 31, 2016
has been derived from the audited financial statements at that date but does not include all of the information or notes required by U.S. generally accepted accounting principles for complete financial statements.
Note 2—Recently Issued Accounting Standards
The following table provides a brief description of recent accounting pronouncements adopted January 1, 2017. The adoption of these standards did not have a material effect on the Company's financial position, results of operations, cash flows or related disclosures.
|
|
|
|
|
|
|
Standard
|
|
Description
|
|
ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory
|
|
The guidance requires inventory to be measured at the lower of cost or net realizable value. The guidance defines net realizable value as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.
|
|
ASU No. 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships
|
|
The guidance clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship, provided that all other hedge accounting criteria continue to be met.
|
|
ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323)
|
|
The guidance eliminates the requirement that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. In addition, the guidance requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting.
|
|
ASU No. 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
|
|
The guidance simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.
|
The following table provides a brief description of recent accounting pronouncements not yet adopted:
|
|
|
|
|
|
|
|
|
|
|
Standard
|
|
Description
|
|
Required Date of Adoption
|
|
Effect on the financial statements or other significant matters
|
|
ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (Subsequent ASUs have been issued in 2015 and 2016 to update or clarify this guidance)
|
|
The new guidance is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.
|
|
January 1, 2018
|
|
The Company's evaluation process of the new standard includes, but is not limited to, identifying contracts within the scope of the guidance, reviewing and documenting the accounting for these contracts and identifying and determining the accounting for any related contract costs. The Company has identified relevant revenue streams and substantially completed the review of a sample of contracts for the lift truck business within the scope of the guidance. The Company's evaluation of revenue streams and contracts at Bolzoni will continue in the third quarter of 2017. The Company plans to adopt the standard for the first quarter of 2018 using the modified retrospective approach and will record a cumulative adjustment to equity for open contracts as of January 1, 2018. The Company is continuing to evaluate the impact of the standard on its financial statements, business processes and internal controls over financial reporting. At this time, an estimate of the impact to the consolidated financial statements cannot be made. In addition, the standard requires new substantial disclosures and the Company continues to evaluate these requirements.
|
|
|
|
|
|
|
|
|
|
|
|
Standard
|
|
Description
|
|
Required Date of Adoption
|
|
Effect on the financial statements or other significant matters
|
|
ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
|
|
The guidance requires equity investments previously accounted for under the cost method of accounting to be measured at fair value and recognized in net income. In addition, the guidance defines measurement and presentation of financial instruments.
|
|
January 1, 2018
|
|
The Company is currently evaluating the adoption and the effect on its financial position, results of operations, cash flows and related disclosures. The Company anticipates the adoption will increase the volatility of other (income) expense as a result of applying the guidance for available-for-sale equity securities.
|
|
ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
|
|
The guidance clarifies the classification of certain types of cash receipts and cash payments. In addition, the guidance provides for the application of the predominance principle when certain cash receipts and payments have aspects of more than one class of cash flows.
|
|
January 1, 2018
|
|
The Company does not expect the adoption of the guidance to have a material effect on its financial position, results of operations, cash flows or related disclosures.
|
|
ASU No. 2016-16, Income Taxes (Topic 740)
|
|
The guidance allows for recognition of current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The guidance allows for more accurate representation of the economics of an intra-entity asset transfer which will require income tax consequences of the transfer, including income taxes payable or paid.
|
|
January 1, 2018
|
|
The Company does not expect the adoption of the guidance to have a material effect on its financial position, results of operations, cash flows or related disclosures.
|
|
ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash
|
|
The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.
|
|
January 1, 2018
|
|
The Company does not expect the adoption of the guidance to have a material effect on its financial position, results of operations, cash flows or related disclosures.
|
|
ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business
|
|
The guidance clarifies the definition of a business to assist entities in evaluating whether transactions should be accounted for as acquisitions or disposals of businesses.
|
|
January 1, 2018
|
|
The Company does not expect the adoption of the guidance to have a material effect on its financial position, results of operations, cash flows or related disclosures.
|
|
ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition
|
|
The guidance clarifies the scope and accounting of a financial asset that meets the definition of an "in-substance nonfinancial asset" and defines the term, "in-substance nonfinancial asset," in addition to partial sales of nonfinancial assets.
|
|
January 1, 2018
|
|
The Company is currently evaluating the adoption and the effect on its financial position, results of operations, cash flows and related disclosures.
|
|
ASU 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement
|
|
The guidance requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations.
|
|
January 1, 2018
|
|
The Company is currently evaluating the adoption and the effect on its financial position, results of operations, cash flows and related disclosures.
|
|
ASU No. 2016-02, Leases (Topic 842)
|
|
The guidance requires lessees (with the exception of short-term leases) to recognize, at the commencement date, a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
|
|
January 1, 2019
|
|
The Company is currently evaluating the alternative methods of adoption and the effect on its financial position, results of operations, cash flows and related disclosures. The Company anticipates the adoption will materially affect the consolidated balance sheets and will require changes to the Company's systems and processes.
|
|
ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326)
|
|
The guidance eliminates the probable initial recognition threshold and requires an entity to reflect its current estimate of all expected credit losses. The guidance also requires additional disclosures in certain circumstances.
|
|
January 1, 2020
|
|
The Company is currently evaluating the alternative methods of adoption and the effect on its financial position, results of operations, cash flows and related disclosures.
|
|
ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
|
|
The guidance removes the second step of the two-step test for the measurement of goodwill impairment. The guidance allows for early adoption for impairment testing dates after January 1, 2017.
|
|
January 1, 2020
|
|
The Company is currently evaluating the timing of adoption and the effect on its current impairment testing process.
|
Note 3—Business Segments
The Company’s reportable segments for the lift truck business include the following three management units: the Americas, EMEA and JAPIC. Americas includes operations in the United States, Canada, Mexico, Brazil, Latin America and its corporate headquarters. EMEA includes operations in Europe, the Middle East and Africa. JAPIC includes operations in the Asia and Pacific regions, including China, as well as the equity earnings of SN operations. Certain amounts are allocated to these geographic management units and are included in the segment results presented below, including product development costs, corporate headquarter's expenses and certain information technology infrastructure costs. These allocations among geographic management units are determined by senior management and not directly incurred by the geographic operations. In addition, other costs are incurred directly by these geographic management units based upon the location of the manufacturing plant or sales units, including manufacturing variances, product liability, warranty and sales discounts, which may not be associated with the geographic management unit of the ultimate end user sales location where revenues and margins are reported. Therefore, the reported results of each segment for the lift truck business cannot be considered stand-alone entities as all segments are inter-related and integrate into a single global lift truck business.
The Company reports the results of both Bolzoni and Nuvera as separate segments. Intercompany sales between Nuvera, Bolzoni and the lift truck business have been eliminated. Bolzoni was acquired on April 1, 2016 and its results of operations have been included since the acquisition date.
Financial information for each reportable segment is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
SIX MONTHS ENDED
|
|
|
JUNE 30
|
|
JUNE 30
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Revenues from external customers
|
|
|
|
|
|
|
|
|
Americas
|
$
|
432.9
|
|
|
$
|
414.9
|
|
|
$
|
898.9
|
|
|
$
|
832.1
|
|
|
EMEA
|
172.6
|
|
|
155.6
|
|
|
335.0
|
|
|
302.6
|
|
|
JAPIC
|
42.2
|
|
|
39.1
|
|
|
86.0
|
|
|
78.8
|
|
|
Lift truck business
|
647.7
|
|
|
609.6
|
|
|
1,319.9
|
|
|
1,213.5
|
|
|
Bolzoni
|
41.9
|
|
|
38.9
|
|
|
83.5
|
|
|
38.9
|
|
|
Nuvera
|
0.4
|
|
|
0.2
|
|
|
3.0
|
|
|
0.5
|
|
|
Eliminations
|
(4.5
|
)
|
|
(3.1
|
)
|
|
(7.8
|
)
|
|
(3.1
|
)
|
|
Total
|
$
|
685.5
|
|
|
$
|
645.6
|
|
|
$
|
1,398.6
|
|
|
$
|
1,249.8
|
|
|
Gross profit (loss)
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
82.7
|
|
|
$
|
72.8
|
|
|
$
|
167.6
|
|
|
$
|
145.0
|
|
|
EMEA
|
23.6
|
|
|
24.3
|
|
|
46.1
|
|
|
46.4
|
|
|
JAPIC
|
4.2
|
|
|
4.5
|
|
|
9.7
|
|
|
8.7
|
|
|
Lift truck business
|
110.5
|
|
|
101.6
|
|
|
223.4
|
|
|
200.1
|
|
|
Bolzoni
|
12.4
|
|
|
12.8
|
|
|
26.2
|
|
|
12.8
|
|
|
Nuvera
|
(0.9
|
)
|
|
(0.4
|
)
|
|
(1.5
|
)
|
|
(1.0
|
)
|
|
Eliminations
|
(0.3
|
)
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
Total
|
$
|
121.7
|
|
|
$
|
114.0
|
|
|
$
|
247.8
|
|
|
$
|
211.9
|
|
|
Operating profit (loss)
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
27.9
|
|
|
$
|
16.3
|
|
|
$
|
57.7
|
|
|
$
|
31.7
|
|
|
EMEA
|
2.9
|
|
|
3.6
|
|
|
4.4
|
|
|
5.6
|
|
|
JAPIC
|
(2.2
|
)
|
|
(0.9
|
)
|
|
(2.9
|
)
|
|
(2.5
|
)
|
|
Lift truck business
|
28.6
|
|
|
19.0
|
|
|
59.2
|
|
|
34.8
|
|
|
Bolzoni
|
0.5
|
|
|
0.7
|
|
|
2.8
|
|
|
0.7
|
|
|
Nuvera
|
(10.5
|
)
|
|
(8.3
|
)
|
|
(20.0
|
)
|
|
(14.4
|
)
|
|
Eliminations
|
(0.3
|
)
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
Total
|
$
|
18.3
|
|
|
$
|
11.4
|
|
|
$
|
41.7
|
|
|
$
|
21.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
SIX MONTHS ENDED
|
|
|
JUNE 30
|
|
JUNE 30
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Net income (loss) attributable to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
23.8
|
|
|
$
|
9.9
|
|
|
$
|
44.3
|
|
|
$
|
23.0
|
|
|
EMEA
|
2.2
|
|
|
3.1
|
|
|
3.3
|
|
|
4.5
|
|
|
JAPIC
|
(2.2
|
)
|
|
0.1
|
|
|
(1.5
|
)
|
|
(0.7
|
)
|
|
Lift truck business
|
23.8
|
|
|
13.1
|
|
|
46.1
|
|
|
26.8
|
|
|
Bolzoni
|
(0.1
|
)
|
|
0.1
|
|
|
1.4
|
|
|
0.1
|
|
|
Nuvera
|
(6.3
|
)
|
|
(4.9
|
)
|
|
(12.0
|
)
|
|
(8.6
|
)
|
|
Eliminations
|
(1.0
|
)
|
|
—
|
|
|
(1.0
|
)
|
|
—
|
|
|
Total
|
$
|
16.4
|
|
|
$
|
8.3
|
|
|
$
|
34.5
|
|
|
$
|
18.3
|
|
Note 4—Income Taxes
The income tax provision includes U.S. federal, state and local, and foreign income taxes and is based on the application of a
forecasted annual income tax rate applied to the current quarter's year-to-date pre-tax income or loss. In determining the
estimated annual effective income tax rate, the Company analyzes various factors, including projections of the Company's
annual earnings, taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the
Company's ability to use tax credits and net operating loss carryforwards and capital loss carryforwards, and available tax planning alternatives. Discrete items, including the effect of changes in tax laws, tax rates and certain circumstances with respect to valuation allowances or the tax effect of other unusual or non-recurring transactions or adjustments are reflected in the period in which they occur as an addition to, or reduction from, the income tax provision, rather than included in the estimated effective annual income tax rate. Additionally, the Company's interim effective income tax rate is computed and applied without regard to pre-tax losses where such losses are not expected to generate a current-year tax benefit, as reflected in the interim adjustment line in the table below.
A reconciliation of the consolidated federal statutory to reported income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
SIX MONTHS ENDED
|
|
|
|
JUNE 30
|
|
JUNE 30
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Income before income taxes
|
|
$
|
18.3
|
|
|
$
|
11.8
|
|
|
$
|
42.6
|
|
|
$
|
20.7
|
|
|
Statutory taxes at 35%
|
|
$
|
6.4
|
|
|
$
|
4.1
|
|
|
$
|
14.9
|
|
|
$
|
7.2
|
|
|
Interim adjustment
|
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
Permanent adjustments:
|
|
|
|
|
|
|
|
|
|
Non-U.S. rate differences
|
|
(2.4
|
)
|
|
(1.9
|
)
|
|
(4.8
|
)
|
|
(2.7
|
)
|
|
Other
|
|
—
|
|
|
(0.5
|
)
|
|
(0.5
|
)
|
|
(0.3
|
)
|
|
|
|
$
|
(2.4
|
)
|
|
$
|
(2.4
|
)
|
|
$
|
(5.3
|
)
|
|
$
|
(3.0
|
)
|
|
Discrete items
|
|
$
|
(2.4
|
)
|
|
$
|
1.8
|
|
|
$
|
(1.8
|
)
|
|
$
|
(1.7
|
)
|
|
Income tax provision
|
|
$
|
1.9
|
|
|
$
|
3.5
|
|
|
$
|
8.1
|
|
|
$
|
2.5
|
|
|
Reported income tax rate
|
|
10.4
|
%
|
|
29.7
|
%
|
|
19.0
|
%
|
|
12.1
|
%
|
During the second quarter of 2017, the Company recognized a net discrete tax benefit of
$4.4 million
from an internal sale of a subsidiary between consolidated companies resulting in the repatriation of non-U.S. accumulated earnings taxed at higher rates, partially 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 the second quarter of 2016, the Company recognized a discrete tax expense of
$1.6 million
related to non-deductible acquisition expenses. In addition, during the first quarter of 2016, the Company recognized a discrete tax benefit of
$4.0 million
. As a result of the acquisition of Bolzoni, the Company changed its previous reinvestment assertion; and consequently, all of the earnings of its European operations were considered permanently reinvested and the previously provided deferred tax liability was no longer required.
Note 5—Reclassifications from OCI
The following table summarizes reclassifications out of accumulated other comprehensive income (loss) ("OCI") as recorded in the unaudited condensed consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about OCI Components
|
|
Amount Reclassified from OCI
|
|
Affected Line Item in the Statement Where Net Income Is Presented
|
|
|
|
THREE MONTHS ENDED
|
|
SIX MONTHS ENDED
|
|
|
|
|
|
JUNE 30
|
|
JUNE 30
|
|
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
Gain (loss) on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
(1.3
|
)
|
|
$
|
0.7
|
|
|
$
|
(1.5
|
)
|
|
$
|
(0.9
|
)
|
|
Cost of sales
|
|
Total before tax
|
|
(1.3
|
)
|
|
0.7
|
|
|
(1.5
|
)
|
|
(0.9
|
)
|
|
Income before income taxes
|
|
Tax benefit
|
|
0.7
|
|
|
—
|
|
|
0.8
|
|
|
1.1
|
|
|
Income tax provision (benefit)
|
|
Net of tax
|
|
$
|
(0.6
|
)
|
|
$
|
0.7
|
|
|
$
|
(0.7
|
)
|
|
$
|
0.2
|
|
|
Net income
|
|
Amortization of defined benefit pension items:
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
|
$
|
(1.2
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
(2.2
|
)
|
|
$
|
(1.6
|
)
|
|
(a)
|
|
Prior service credit
|
|
0.1
|
|
|
0.1
|
|
|
0.2
|
|
|
0.2
|
|
|
(a)
|
|
Total before tax
|
|
(1.1
|
)
|
|
(0.7
|
)
|
|
(2.0
|
)
|
|
(1.4
|
)
|
|
Income before income taxes
|
|
Tax benefit
|
|
0.4
|
|
|
0.3
|
|
|
0.6
|
|
|
0.4
|
|
|
Income tax provision (benefit)
|
|
Net of tax
|
|
$
|
(0.7
|
)
|
|
$
|
(0.4
|
)
|
|
$
|
(1.4
|
)
|
|
$
|
(1.0
|
)
|
|
Net income
|
|
Total reclassifications for the period
|
|
$
|
(1.3
|
)
|
|
$
|
0.3
|
|
|
$
|
(2.1
|
)
|
|
$
|
(0.8
|
)
|
|
|
(a) These OCI components are included in the computation of net pension cost (see Note 7 for additional details).
Note 6—Financial Instruments and Derivative Financial Instruments
Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturities of these instruments. The fair values of revolving credit agreements and long-term debt, excluding capital leases, were determined using current rates offered for similar obligations taking into account company credit risk. This valuation methodology is Level 2 as defined in the fair value hierarchy. At
June 30, 2017
, the fair value and book value of revolving credit agreements and long-term debt, excluding capital leases, was
$277.2 million
. At
December 31, 2016
, the fair value and book value of revolving credit agreements and long-term debt, excluding capital leases, was
$184.5 million
.
Derivative Financial Instruments
The Company uses forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies. These contracts hedge firm commitments and forecasted transactions relating to cash flows associated with sales and purchases denominated in non-functional currencies. The Company offsets fair value amounts related to foreign currency exchange contracts executed with the same counterparty. Changes in the fair value of forward foreign currency exchange contracts that are effective as hedges are recorded in OCI. Deferred gains or losses are reclassified from OCI to the unaudited condensed consolidated statements of operations in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in cost of sales. The ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and is also generally recognized in cost of sales.
The Company periodically enters into foreign currency exchange contracts that do not meet the criteria for hedge accounting. These derivatives are used to reduce the Company's exposure to foreign currency risk related to forecasted purchase or sales transactions or forecasted intercompany cash payments or settlements. Gains and losses on these derivatives are generally recognized in cost of sales.
The Company periodically enters into forward foreign currency contracts that are designated as net investment hedges of the Company's net investment in its foreign subsidiaries. For derivative instruments that are designated and qualified as a hedge of a net investment in foreign currency, the gain or loss is reported in other comprehensive income as part of the cumulative translation adjustment to the extent it is effective. The Company utilizes the forward-rate method of assessing hedge
effectiveness. Any ineffective portion of net investment hedges would be recognized in the unaudited condensed consolidated statement of operations in the same period as the change.
During 2017, the Company entered into cross-currency swaps which hedge the variability of expected future cash flows that are attributable to foreign currency risk of certain intercompany loans. These agreements include initial and final exchanges of principal and associated interest payments from fixed euro denominated to fixed U.S.-denominated amounts. Changes in the fair value of cross-currency swaps that are effective as hedges are recorded in OCI. Deferred gains or losses are reclassified from OCI to the unaudited condensed consolidated statements of operations in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in other (income) expense and interest expense. The ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and is also generally recognized in other (income) expense.
The Company uses interest rate swap agreements to partially reduce risks related to floating rate financing agreements that are subject to changes in the market rate of interest. Terms of the interest rate swap agreements require the Company to receive a variable interest rate and pay a fixed interest rate. The Company's interest rate swap agreements and its variable rate financings are predominately based upon the one or three-month LIBOR. Changes in the fair value of interest rate swap agreements that are effective as hedges are recorded in OCI. Deferred gains or losses are reclassified from OCI to the unaudited condensed consolidated statements of operations in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in interest expense. The ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and included on the line "Other" in the "Other (income) expense" section of the unaudited condensed consolidated statements of operations.
Cash flows from hedging activities are reported in the unaudited condensed consolidated statements of cash flows with the same classification as the hedged item, generally as a component of cash flows from operations.
The Company measures its derivatives at fair value on a recurring basis using significant observable inputs. This valuation methodology is Level 2 as defined in the fair value hierarchy. The Company uses a present value technique that incorporates yield curves and foreign currency spot rates to value its derivatives and also incorporates the effect of the Company's and its counterparties' credit risk into the valuation.
The Company does not currently hold any nonderivative instruments designated as hedges or any derivatives designated as fair value hedges.
Foreign Currency Derivatives:
The Company held forward foreign currency exchange contracts with total notional amounts of $
768.5 million
at
June 30, 2017
, primarily denominated in euros, U.S. dollars, Japanese yen, British pounds, Swedish kroner and Mexican pesos. The Company held forward foreign currency exchange contracts with total notional amounts of $
592.9 million
at
December 31, 2016
, primarily denominated in euros, U.S. dollars, Japanese yen, British pounds, Swedish kroner and Mexican pesos. The fair value of these contracts approximated a net liability of $
5.9 million
and $
22.7 million
at
June 30, 2017
and
December 31, 2016
, respectively.
Forward foreign currency exchange contracts that qualify for hedge accounting are generally used to hedge transactions expected to occur within the next 36 months. The mark-to-market effect of forward foreign currency exchange contracts that are considered effective as hedges has been included in OCI. Based on market valuations at
June 30, 2017
, $
3.5 million
of the amount of net deferred loss included in OCI at
June 30, 2017
is expected to be reclassified as a loss into the unaudited condensed consolidated statement of operations over the next twelve months, as the transactions occur.
Interest Rate Derivatives:
The Company holds certain contracts that hedge interest payments on the Term Loan (as defined below) borrowings and one and three-month LIBOR borrowings. The following table summarizes the notional amounts, related rates, excluding spreads, and remaining terms of interest rate swap agreements at
June 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Average Fixed Rate
|
|
|
|
June 30
|
|
December 31
|
|
June 30
|
|
December 31
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Term at June 30, 2017
|
|
$
|
100.0
|
|
|
$
|
100.0
|
|
|
1.47
|
%
|
|
1.47
|
%
|
|
Extending to December 2018
|
|
56.5
|
|
|
—
|
|
|
1.94
|
%
|
|
—
|
|
|
November 2017 to November 2022
|
|
83.5
|
|
|
—
|
|
|
2.20
|
%
|
|
—
|
|
|
December 2018 to May 2023
|
The Company does not apply hedge accounting to the interest rate derivatives which expire December 2018. The fair value of all interest rate swap agreements was a net liability of
$0.5 million
and $
0.3 million
at
June 30, 2017
and
December 31, 2016
, respectively. The mark-to-market effect of interest rate swap agreements that are considered effective as hedges has been included in OCI. Based on market valuations at
June 30, 2017
,
$0.1 million
of the amount included in OCI is expected to be reclassified as expense in the unaudited condensed consolidated statement of operations over the next twelve months, as cash flow payments are made in accordance with the interest rate swap agreements.
The following table summarizes the fair value of derivative instruments reflected on a gross basis by contract as recorded in the unaudited condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
Balance Sheet Location
|
|
JUNE 30
2017
|
|
DECEMBER 31
2016
|
|
Balance Sheet Location
|
|
JUNE 30
2017
|
|
DECEMBER 31
2016
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
Other current liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other current liabilities
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
Long-term
|
Other long-term liabilities
|
|
0.2
|
|
|
—
|
|
|
Other long-term liabilities
|
|
0.4
|
|
|
—
|
|
|
Foreign currency exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
Prepaid expenses and other
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
Prepaid expenses and other
|
|
$
|
0.9
|
|
|
$
|
—
|
|
|
|
Other current liabilities
|
|
3.3
|
|
|
3.7
|
|
|
Other current liabilities
|
|
7.4
|
|
|
14.0
|
|
|
Long-term
|
Other non-current assets
|
|
3.1
|
|
|
—
|
|
|
Other non-current assets
|
|
0.9
|
|
|
—
|
|
|
|
Other long-term liabilities
|
|
0.1
|
|
|
—
|
|
|
Other long-term liabilities
|
|
3.0
|
|
|
10.1
|
|
|
Total derivatives designated as hedging instruments
|
|
$
|
8.0
|
|
|
$
|
3.7
|
|
|
|
|
$
|
12.8
|
|
|
$
|
24.1
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
Other current liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other current liabilities
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
Long-term
|
Other non-current assets
|
|
—
|
|
|
0.2
|
|
|
Other non-current assets
|
|
—
|
|
|
—
|
|
|
|
Other long-term liabilities
|
|
0.1
|
|
|
—
|
|
|
Other long-term liabilities
|
|
0.2
|
|
|
0.2
|
|
|
Foreign currency exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
Prepaid expenses and other
|
|
—
|
|
|
—
|
|
|
Prepaid expenses and other
|
|
—
|
|
|
—
|
|
|
|
Other current liabilities
|
|
0.8
|
|
|
1.6
|
|
|
Other current liabilities
|
|
2.3
|
|
|
3.9
|
|
|
Total derivatives not designated as hedging instruments
|
|
$
|
0.9
|
|
|
$
|
1.8
|
|
|
|
|
$
|
2.5
|
|
|
$
|
4.4
|
|
|
Total derivatives
|
|
$
|
8.9
|
|
|
$
|
5.5
|
|
|
|
|
$
|
15.3
|
|
|
$
|
28.5
|
|
The following table summarizes the offsetting of the fair value of derivative instruments on a gross basis by counterparty as recorded in the unaudited condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets as of June 30, 2017
|
|
Derivative Liabilities as of June 30, 2017
|
|
|
|
Gross Amounts of Recognized Assets
|
|
Gross Amounts Offset
|
|
Net Amounts Presented
|
|
Net Amount
|
|
Gross Amounts of Recognized Liabilities
|
|
Gross Amounts Offset
|
|
Net Amounts Presented
|
|
Net Amount
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
Foreign currency exchange contracts
|
|
2.6
|
|
|
(2.6
|
)
|
|
—
|
|
|
—
|
|
|
8.5
|
|
|
(2.6
|
)
|
|
5.9
|
|
|
5.9
|
|
|
Total derivatives
|
|
$
|
2.6
|
|
|
$
|
(2.6
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9.0
|
|
|
$
|
(2.6
|
)
|
|
$
|
6.4
|
|
|
$
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets as of December 31, 2016
|
|
Derivative Liabilities as of December 31, 2016
|
|
|
|
Gross Amounts of Recognized Assets
|
|
Gross Amounts Offset
|
|
Net Amounts Presented
|
|
Net Amount
|
|
Gross Amounts of Recognized Liabilities
|
|
Gross Amounts Offset
|
|
Net Amounts Presented
|
|
Net Amount
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
0.2
|
|
|
$
|
(0.2
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
(0.2
|
)
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
Foreign currency exchange contracts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22.7
|
|
|
—
|
|
|
22.7
|
|
|
22.7
|
|
|
Total derivatives
|
|
$
|
0.2
|
|
|
$
|
(0.2
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23.2
|
|
|
$
|
(0.2
|
)
|
|
$
|
23.0
|
|
|
$
|
23.0
|
|
The following table summarizes the pre-tax impact of derivative instruments as recorded in the unaudited condensed consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
|
|
Location of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)
|
|
Amount of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)
|
|
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
|
|
Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
|
|
|
|
THREE MONTHS ENDED
|
|
SIX MONTHS ENDED
|
|
|
|
THREE MONTHS ENDED
|
|
SIX MONTHS ENDED
|
|
|
|
THREE MONTHS ENDED
|
|
SIX MONTHS ENDED
|
|
|
|
JUNE 30
|
|
|
|
JUNE 30
|
|
|
|
JUNE 30
|
|
Derivatives designated as hedging instruments
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
(0.4
|
)
|
|
$
|
—
|
|
|
$
|
(0.4
|
)
|
|
$
|
—
|
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign currency exchange contracts
|
|
$
|
6.7
|
|
|
$
|
(4.6
|
)
|
|
$
|
13.7
|
|
|
$
|
8.4
|
|
|
Cost of sales
|
|
$
|
(1.3
|
)
|
|
$
|
0.7
|
|
|
$
|
(1.5
|
)
|
|
$
|
(0.9
|
)
|
|
Cost of sales
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
Total
|
|
$
|
6.3
|
|
|
$
|
(4.6
|
)
|
|
$
|
13.3
|
|
|
$
|
8.4
|
|
|
|
|
$
|
(1.3
|
)
|
|
$
|
0.7
|
|
|
$
|
(1.5
|
)
|
|
$
|
(0.9
|
)
|
|
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss) Recognized in Income on Derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
SIX MONTHS ENDED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JUNE 30
|
|
Derivatives Not Designated as Hedging Instruments
|
|
Location of Gain or (Loss) Recognized in Income on Derivative
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
Other
|
|
$
|
(0.2
|
)
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
$
|
(1.5
|
)
|
|
Foreign currency exchange contracts
|
|
Cost of sales
|
|
2.4
|
|
|
0.1
|
|
|
1.7
|
|
|
0.5
|
|
|
Total
|
|
|
|
$
|
2.2
|
|
|
$
|
0.1
|
|
|
$
|
1.6
|
|
|
$
|
(1.0
|
)
|
Note 7—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. The Company's policy is to make contributions to fund these plans within the range allowed by applicable regulations. Plan assets consist primarily of publicly traded stocks and government and corporate bonds.
Pension benefits for employees covered under the Company's U.S. and U.K. plans are frozen. Only certain grandfathered employees in the Netherlands still earn retirement benefits under a defined benefit pension plan. All other eligible employees of the Company, including employees whose pension benefits are frozen, receive retirement benefits under defined contribution retirement plans.
The Company previously disclosed in its Annual Report on Form 10-K for the year ended
December 31, 2016
that it expected to make
no
contributions to its U.S. pension plans and contribute approximately
$3.0 million
to its non-U.S. pension plans in
2017
. The Company now expects to contribute approximately
$0.5 million
and
$9.3 million
to its U.S. and non-U.S. pension plans, respectively, in
2017
.
The components of pension (income) expense are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
SIX MONTHS ENDED
|
|
|
JUNE 30
|
|
JUNE 30
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
U.S. Pension
|
|
|
|
|
|
|
|
|
Interest cost
|
$
|
0.7
|
|
|
$
|
0.8
|
|
|
$
|
1.4
|
|
|
$
|
1.5
|
|
|
Expected return on plan assets
|
(1.3
|
)
|
|
(1.2
|
)
|
|
(2.5
|
)
|
|
(2.4
|
)
|
|
Amortization of actuarial loss
|
0.5
|
|
|
0.4
|
|
|
0.9
|
|
|
0.8
|
|
|
Amortization of prior service credit
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(0.2
|
)
|
|
(0.2
|
)
|
|
Total
|
$
|
(0.2
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(0.4
|
)
|
|
$
|
(0.3
|
)
|
|
Non-U.S. Pension
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
Interest cost
|
1.0
|
|
|
1.3
|
|
|
2.0
|
|
|
2.6
|
|
|
Expected return on plan assets
|
(2.3
|
)
|
|
(2.3
|
)
|
|
(4.5
|
)
|
|
(4.6
|
)
|
|
Amortization of actuarial loss
|
0.7
|
|
|
0.4
|
|
|
1.3
|
|
|
0.8
|
|
|
Total
|
$
|
(0.6
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(1.1
|
)
|
|
$
|
(1.1
|
)
|
Note 8—Inventories
Inventories are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
JUNE 30
2017
|
|
DECEMBER 31
2016
|
|
Finished goods and service parts
|
$
|
185.5
|
|
|
$
|
171.9
|
|
|
Work in process
|
18.1
|
|
|
26.1
|
|
|
Raw materials
|
217.8
|
|
|
191.4
|
|
|
Total manufactured inventories
|
421.4
|
|
|
389.4
|
|
|
LIFO reserve
|
(38.9
|
)
|
|
(37.2
|
)
|
|
Total inventory
|
$
|
382.5
|
|
|
$
|
352.2
|
|
The cost of certain manufactured inventories, including service parts, has been determined using the last-in-first-out (“LIFO”) method. At
June 30, 2017
and
December 31, 2016
,
48%
and
54%
, respectively, of total inventories were determined using the LIFO method. An actual valuation of inventory under the LIFO method can be made only at the end of the year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must be based on management's estimates of expected year-end inventory levels and costs. Because these estimates are subject to change and may be different than the actual inventory levels and costs at the end of the year, interim results are subject to the final year-end LIFO inventory valuation.
Note 9—Current and Long-Term Financing
The Company has a
$200.0 million
secured, floating-rate revolving credit facility (the "Facility”) that expires in April 2022. On May 30, 2017, the Company amended the Facility to, among other things, permit term loans and related liens, reduce the availability from $240.0 million and extend the expiration of the Facility from April 2021. There were
no
borrowings outstanding under the Facility at
June 30, 2017
. The excess availability under the Facility, at
June 30, 2017
, was
$194.0 million
, which reflects reductions of
$6.0 million
for letters of credit and other restrictions.
The Facility consists of a U.S. revolving credit facility in the maximum initial amount of $120.0 million and a non-U.S. revolving credit facility in the maximum initial amount of $80.0 million. The Facility can be increased up to the total aggregate amount of $300.0 million 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 first priority 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 priority 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
June 30, 2017
.
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, effective
June 30, 2017
, for U.S. base rate loans and LIBOR loans were
0.50%
and
1.50%
, respectively. The applicable margins, effective
June 30, 2017
, for non-U.S. base rate loans and LIBOR loans was
1.50%
. The applicable LIBOR interest rates under the Facility on
June 30, 2017
were
2.75%
and
1.50%
, 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
June 30, 2017
.
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 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 June 30, 2017, the Company was in compliance with the covenants in the Facility.
On May 30, 2017, the Company entered into an agreement for a $200.0 million term loan (the “Term Loan”), which matures on May 30, 2023. The Term Loan requires
quarterly principal payments on the last day of each March, June, September and December commencing September 30, 2017 in an amount equal to $2.5 million and the final principal repayment due on the May 30, 2023
. The Company may also be required to make mandatory prepayments, in certain circumstances, as provided in the Term Loan. At
June 30, 2017
, there was
$200.0 million
of principal outstanding under the Term Loan which has been reduced by
$4.8 million
of discounts and unamortized deferred financing fees in the unaudited condensed consolidated balance sheet.
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
$650 million
as of
June 30, 2017
, which includes the book value of the assets securing the Facility.
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 is based on the consolidated leverage ratio, as provided in the Term Loan, and ranges from
2.75%
to
3.00%
for U.S. base rate loans and
3.75%
to
4.00%
for Eurodollar loans. The weighted average interest rate on the amount outstanding under the Term Loan at
June 30, 2017
was
5.23%
.
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.
The Term Loan also contains a provision requiring a premium to be paid in the event of a repricing of the borrowings under the Term Loan, whether by amendment or entry into new loans, within the six month period following entry into the Term Loan. At
June 30, 2017
, the Company was in compliance with the covenants in the Term Loan.
The Company incurred fees and expenses of
$5.0 million
in
2017
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
$82.0 million
at
June 30, 2017
.
Note 10—Product Warranties
The Company provides a standard warranty on its lift trucks, generally for
twelve months or 1,000 to 2,000 hours
. For certain series of lift trucks, the Company provides a standard warranty of
one to two years or 2,000 or 4,000 hours
. For certain components in some series of lift trucks, the Company provides a standard warranty of
two to three years or 4,000 to 6,000 hours
. The Company estimates the costs which may be incurred under its standard warranty programs and records a liability for such costs at the time product revenue is recognized.
In addition, the Company sells separately-priced extended warranty agreements for its lift trucks, which generally provide a warranty for an additional
two to five years or up to 2,400 to 10,000 hours
.
The specific terms and conditions of those warranties vary depending upon the product sold and the country in which the Company does business. Revenue received for the sale of extended warranty contracts is deferred and recognized in the same manner as the costs incurred to perform under the warranty contracts.
The Company also maintains a quality enhancement program under which it provides for specifically identified field product improvements in its warranty obligation. Accruals under this program are determined based on estimates of the potential number of claims and the cost of those claims based on historical and anticipated costs.
The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Factors that affect the warranty liability include the number of units sold, historical and anticipated rates of warranty claims and the cost per claim.
Changes in the Company's current and long-term warranty obligations, including deferred revenue on extended warranty contracts, are as follows:
|
|
|
|
|
|
|
|
|
2017
|
|
Balance at January 1
|
$
|
52.3
|
|
|
Current year warranty expense
|
18.6
|
|
|
Change in estimate related to pre-existing warranties
|
(4.2
|
)
|
|
Payments made
|
(13.8
|
)
|
|
Foreign currency effect
|
1.1
|
|
|
Balance at June 30
|
$
|
54.0
|
|
Note 11—Contingencies
Various legal and regulatory proceedings and claims have been or may be asserted against the Company relating to the conduct of its businesses, including product liability, environmental and other claims. These proceedings and claims are incidental to the ordinary course of business. Management believes that it has meritorious defenses and will vigorously defend the Company in these actions. Any costs that management estimates will be paid as a result of these claims are accrued when the liability is considered probable and the amount can be reasonably estimated. Although the ultimate disposition of these proceedings is not presently determinable, management believes, after consultation with its legal counsel, that the likelihood is remote that costs will be incurred materially in excess of accruals already recognized.
Note 12—Guarantees
Under various financing arrangements for certain customers, including independent retail dealerships, the Company provides recourse or repurchase obligations such that it would be obligated in the event of default by the customer.
Terms of the third-party financing arrangements for which the Company is providing recourse or repurchase obligations generally range from one to five years.
Total amounts subject to recourse or repurchase obligations at
June 30, 2017
and
December 31, 2016
were
$148.2 million
and
$149.3 million
, respectively. As of
June 30, 2017
, losses anticipated under the terms of the recourse or repurchase obligations were not significant and reserves have been provided for such losses based on historical experience in the accompanying unaudited condensed consolidated financial statements. The Company generally retains a security interest in the
related assets financed such that, in the event the Company would become obligated under the terms of the recourse or repurchase obligations, the Company would take title to the assets financed. The fair value of collateral held at
June 30, 2017
was approximately
$194.2 million
based on Company estimates. The Company estimates the fair value of the collateral using information regarding the original sales price, the current age of the equipment and general market conditions that influence the value of both new and used lift trucks. The Company also regularly monitors the external credit ratings of the entities for which it has provided recourse or repurchase obligations. As of
June 30, 2017
, the Company did not believe there was a significant risk of non-payment or non-performance of the obligations by these entities; however, there can be no assurance that the risk may not increase in the future. 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
$33.8 million
of recourse or repurchase obligations for these certain eligible dealers are limited to
7.5%
of their original loan balance, or
$7.8 million
as of
June 30, 2017
. The
$33.8 million
is included in the
$148.2 million
of total amounts subject to recourse or repurchase obligations at
June 30, 2017
.
Generally, the Company sells lift trucks through its independent dealer network or directly to customers. These dealers and customers may enter into a financing transaction with HYGFS or other unrelated third parties. HYGFS provides debt and lease financing to both dealers and customers. On occasion, the credit quality of a customer or credit concentration issues within WF may require the Company to provide recourse or repurchase obligations of the lift trucks purchased by customers and financed through HYGFS. At
June 30, 2017
, approximately
$128.3 million
of the Company's total recourse or repurchase obligations of
$148.2 million
related to transactions with HYGFS. In connection with the joint venture agreement, the Company also provides a guarantee to WF for
20%
of HYGFS’ debt with WF, such that the Company would become liable under the terms of HYGFS’ debt agreements with WF in the case of default by HYGFS. At
June 30, 2017
, loans from WF to HYGFS totaled
$943.3 million
. Although the Company’s contractual guarantee was
$188.7 million
, the loans by WF to HYGFS are secured by HYGFS’ customer receivables, of which the Company guarantees
$128.3 million
. Excluding the HYGFS receivables guaranteed by the Company from HYGFS’ loans to WF, the Company’s incremental obligation as a result of this guarantee to WF is
$168.2 million
, which is secured by 20% of HYGFS' customer receivables and other secured assets of
$247.8 million
. HYGFS has not defaulted under the terms of this debt financing in the past, and although there can be no assurances, the Company is not aware of any circumstances that would cause HYGFS to default in future periods.
The following table includes the exposure amounts related to the Company's guarantees at
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HYGFS
|
|
Total
|
|
Total recourse or repurchase obligations
|
|
$
|
128.3
|
|
|
$
|
148.2
|
|
|
Less: exposure limited for certain dealers
|
|
33.8
|
|
|
33.8
|
|
|
Plus: 7.5% of original loan balance
|
|
7.8
|
|
|
7.8
|
|
|
|
|
102.3
|
|
|
122.2
|
|
|
Incremental obligation related to guarantee to WF
|
|
168.2
|
|
|
168.2
|
|
|
Total exposure related to guarantees
|
|
$
|
270.5
|
|
|
$
|
290.4
|
|
Note 13—Equity Investments
The Company maintains an interest in one variable interest entity, HYGFS. HYGFS is a joint venture with WF formed primarily for the purpose of providing financial services to independent Hyster
®
and Yale
®
lift truck dealers and National Account customers in the United States and is included in the Americas segment. The Company does not have a controlling financial interest or have the power to direct the activities that most significantly affect the economic performance of HYGFS. Therefore, the Company is not the primary beneficiary and uses the equity method to account for its
20%
interest in HYGFS. The Company does not consider its variable interest in HYGFS to be significant.
The Company has a
50%
ownership interest in SN, a limited liability company which was formed 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. The Company purchases products from SN under agreed-upon terms. The Company's ownership in SN is also accounted for using the equity method of accounting and is included in the JAPIC segment.
The Company's percentage share of the net income or loss from its equity investments in HYGFS and SN is reported on the line “Income from unconsolidated affiliates” in the “Other (income) expense” section of the unaudited condensed consolidated statements of operations. The Company's equity investments are included on the line “Investment in Unconsolidated Affiliates” in the unaudited condensed consolidated balance sheets. At
June 30, 2017
and
December 31, 2016
, the Company's investment in HYGFS was
$13.2 million
and
$13.8 million
, respectively. The Company's investment in SN was
$34.3 million
and
$31.6
million
at
June 30, 2017
and
December 31, 2016
, respectively. Bolzoni's investment in unconsolidated affiliates was
$0.4 million
and
$0.5 million
at
June 30, 2017
and
December 31, 2016
, respectively.
During the second quarter of 2017, the Company acquired an equity investment in a third party for
$5.6 million
. This investment is accounted for as an available-for-sale security and valued using a quoted market price in an active market, or Level 1 in the fair value hierarchy. The Company's investment as of
June 30, 2017
was
$7.4 million
, which includes a
$1.8 million
unrealized gain that was recorded in OCI in the unaudited condensed consolidated balance sheet.
Summarized financial information for HYGFS and SN is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
SIX MONTHS ENDED
|
|
|
JUNE 30
|
|
JUNE 30
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Revenues
|
$
|
92.9
|
|
|
$
|
85.6
|
|
|
$
|
178.0
|
|
|
$
|
169.8
|
|
|
Gross profit
|
$
|
28.1
|
|
|
$
|
26.5
|
|
|
$
|
55.1
|
|
|
$
|
51.8
|
|
|
Income from continuing operations
|
$
|
6.7
|
|
|
$
|
5.7
|
|
|
$
|
13.2
|
|
|
$
|
11.1
|
|
|
Net income
|
$
|
6.7
|
|
|
$
|
5.7
|
|
|
$
|
13.2
|
|
|
$
|
11.1
|
|
Note 14—Acquisitions
Subsequent to the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2016, the Company finalized its analysis of the fair value of contingent obligations and income taxes for the Bolzoni acquisition on April 1, 2016. As a result of this analysis, the Company recorded a decrease to deferred tax assets and a corresponding increase to goodwill of $1.0 million in the first quarter of 2017.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
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 an array 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, Northern Ireland, Mexico, Italy, the Netherlands, Vietnam, Japan, the Philippines, Brazil and China.
The Company also operates Bolzoni S.p.A. ("Bolzoni"). Bolzoni is a leading worldwide producer 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.
The Company also operates Nuvera Fuel Cells, LLC ("Nuvera"). Nuvera is an alternative-power technology company focused on fuel cell stacks and engines. Nuvera also supports on-site hydrogen production and dispensing systems that are designed to deliver clean energy solutions to customers.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Please refer to the discussion of Critical Accounting Policies and Estimates as disclosed on pages 15 through 17 in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. Critical Accounting Policies and Estimates have not materially changed since December 31, 2016.
FINANCIAL REVIEW
The results of operations for the Company were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
Favorable / (Unfavorable)
|
|
SIX MONTHS ENDED
|
|
Favorable / (Unfavorable)
|
|
|
JUNE 30
|
|
|
JUNE 30
|
|
|
|
2017
|
|
2016
|
|
% Change
|
|
2017
|
|
2016
|
|
% Change
|
|
Lift truck unit shipments (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
13.4
|
|
|
13.3
|
|
|
0.8
|
%
|
|
28.3
|
|
|
26.6
|
|
|
6.4
|
%
|
|
EMEA
|
7.3
|
|
|
6.5
|
|
|
12.3
|
%
|
|
14.3
|
|
|
12.4
|
|
|
15.3
|
%
|
|
JAPIC
|
1.5
|
|
|
1.3
|
|
|
15.4
|
%
|
|
2.9
|
|
|
2.6
|
|
|
11.5
|
%
|
|
|
22.2
|
|
|
21.1
|
|
|
5.2
|
%
|
|
45.5
|
|
|
41.6
|
|
|
9.4
|
%
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
432.9
|
|
|
$
|
414.9
|
|
|
4.3
|
%
|
|
$
|
898.9
|
|
|
$
|
832.1
|
|
|
8.0
|
%
|
|
EMEA
|
172.6
|
|
|
155.6
|
|
|
10.9
|
%
|
|
335.0
|
|
|
302.6
|
|
|
10.7
|
%
|
|
JAPIC
|
42.2
|
|
|
39.1
|
|
|
7.9
|
%
|
|
86.0
|
|
|
78.8
|
|
|
9.1
|
%
|
|
Lift truck business
|
647.7
|
|
|
609.6
|
|
|
6.3
|
%
|
|
1,319.9
|
|
|
1,213.5
|
|
|
8.8
|
%
|
|
Bolzoni
(1)
|
41.9
|
|
|
38.9
|
|
|
7.7
|
%
|
|
83.5
|
|
|
38.9
|
|
|
n.m.
|
|
|
Nuvera
|
0.4
|
|
|
0.2
|
|
|
n.m.
|
|
|
3.0
|
|
|
0.5
|
|
|
n.m.
|
|
|
Eliminations
|
(4.5
|
)
|
|
(3.1
|
)
|
|
45.2
|
%
|
|
(7.8
|
)
|
|
(3.1
|
)
|
|
151.6
|
%
|
|
|
$
|
685.5
|
|
|
$
|
645.6
|
|
|
6.2
|
%
|
|
$
|
1,398.6
|
|
|
$
|
1,249.8
|
|
|
11.9
|
%
|
|
Gross profit (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
82.7
|
|
|
$
|
72.8
|
|
|
13.6
|
%
|
|
$
|
167.6
|
|
|
$
|
145.0
|
|
|
15.6
|
%
|
|
EMEA
|
23.6
|
|
|
24.3
|
|
|
(2.9
|
)%
|
|
46.1
|
|
|
46.4
|
|
|
(0.6
|
)%
|
|
JAPIC
|
4.2
|
|
|
4.5
|
|
|
(6.7
|
)%
|
|
9.7
|
|
|
8.7
|
|
|
11.5
|
%
|
|
Lift truck business
|
110.5
|
|
|
101.6
|
|
|
8.8
|
%
|
|
223.4
|
|
|
200.1
|
|
|
11.6
|
%
|
|
Bolzoni
(1)
|
12.4
|
|
|
12.8
|
|
|
(3.1
|
)%
|
|
26.2
|
|
|
12.8
|
|
|
n.m.
|
|
|
Nuvera
|
(0.9
|
)
|
|
(0.4
|
)
|
|
n.m.
|
|
|
(1.5
|
)
|
|
(1.0
|
)
|
|
n.m.
|
|
|
Eliminations
|
(0.3
|
)
|
|
—
|
|
|
n.m.
|
|
|
(0.3
|
)
|
|
—
|
|
|
n.m.
|
|
|
|
$
|
121.7
|
|
|
$
|
114.0
|
|
|
6.8
|
%
|
|
$
|
247.8
|
|
|
$
|
211.9
|
|
|
16.9
|
%
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
54.8
|
|
|
$
|
56.5
|
|
|
3.0
|
%
|
|
$
|
109.9
|
|
|
$
|
113.3
|
|
|
3.0
|
%
|
|
EMEA
|
20.7
|
|
|
20.7
|
|
|
—
|
%
|
|
41.7
|
|
|
40.8
|
|
|
(2.2
|
)%
|
|
JAPIC
|
6.4
|
|
|
5.4
|
|
|
(18.5
|
)%
|
|
12.6
|
|
|
11.2
|
|
|
(12.5
|
)%
|
|
Lift truck business
|
81.9
|
|
|
82.6
|
|
|
0.8
|
%
|
|
164.2
|
|
|
165.3
|
|
|
0.7
|
%
|
|
Bolzoni
(1)
|
11.9
|
|
|
12.1
|
|
|
1.7
|
%
|
|
23.4
|
|
|
12.1
|
|
|
n.m.
|
|
|
Nuvera
|
9.6
|
|
|
7.9
|
|
|
(21.5
|
)%
|
|
18.5
|
|
|
13.4
|
|
|
(38.1
|
)%
|
|
|
$
|
103.4
|
|
|
$
|
102.6
|
|
|
(0.8
|
)%
|
|
$
|
206.1
|
|
|
$
|
190.8
|
|
|
(8.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
Favorable / (Unfavorable)
|
|
SIX MONTHS ENDED
|
|
Favorable / (Unfavorable)
|
|
|
JUNE 30
|
|
|
JUNE 30
|
|
|
|
2017
|
|
2016
|
|
% Change
|
|
2017
|
|
2016
|
|
% Change
|
|
Operating profit (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
27.9
|
|
|
$
|
16.3
|
|
|
71.2
|
%
|
|
$
|
57.7
|
|
|
$
|
31.7
|
|
|
82.0
|
%
|
|
EMEA
|
2.9
|
|
|
3.6
|
|
|
(19.4
|
)%
|
|
4.4
|
|
|
5.6
|
|
|
(21.4
|
)%
|
|
JAPIC
|
(2.2
|
)
|
|
(0.9
|
)
|
|
(144.4
|
)%
|
|
(2.9
|
)
|
|
(2.5
|
)
|
|
n.m.
|
|
|
Lift truck business
|
28.6
|
|
|
19.0
|
|
|
50.5
|
%
|
|
59.2
|
|
|
34.8
|
|
|
70.1
|
%
|
|
Bolzoni
(1)
|
0.5
|
|
|
0.7
|
|
|
(28.6
|
)%
|
|
2.8
|
|
|
0.7
|
|
|
n.m.
|
|
|
Nuvera
|
(10.5
|
)
|
|
(8.3
|
)
|
|
(26.5
|
)%
|
|
(20.0
|
)
|
|
(14.4
|
)
|
|
(38.9
|
)%
|
|
Eliminations
|
(0.3
|
)
|
|
—
|
|
|
n.m.
|
|
|
(0.3
|
)
|
|
—
|
|
|
n.m.
|
|
|
|
$
|
18.3
|
|
|
$
|
11.4
|
|
|
60.5
|
%
|
|
$
|
41.7
|
|
|
$
|
21.1
|
|
|
97.6
|
%
|
|
Interest expense
|
$
|
2.6
|
|
|
$
|
2.0
|
|
|
(30.0
|
)%
|
|
$
|
4.4
|
|
|
$
|
3.1
|
|
|
(41.9
|
)%
|
|
Other (income) expense
|
$
|
(2.6
|
)
|
|
$
|
(2.4
|
)
|
|
n.m.
|
|
|
$
|
(5.3
|
)
|
|
$
|
(2.7
|
)
|
|
n.m.
|
|
|
Net income (loss) attributable to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
23.8
|
|
|
$
|
9.9
|
|
|
140.4
|
%
|
|
$
|
44.3
|
|
|
$
|
23.0
|
|
|
92.6
|
%
|
|
EMEA
|
2.2
|
|
|
3.1
|
|
|
(29.0
|
)%
|
|
3.3
|
|
|
4.5
|
|
|
(26.7
|
)%
|
|
JAPIC
|
(2.2
|
)
|
|
0.1
|
|
|
n.m.
|
|
|
(1.5
|
)
|
|
(0.7
|
)
|
|
n.m.
|
|
|
Lift truck business
|
23.8
|
|
|
13.1
|
|
|
81.7
|
%
|
|
46.1
|
|
|
26.8
|
|
|
72.0
|
%
|
|
Bolzoni
(1)
|
(0.1
|
)
|
|
0.1
|
|
|
n.m.
|
|
|
1.4
|
|
|
0.1
|
|
|
n.m.
|
|
|
Nuvera
|
(6.3
|
)
|
|
(4.9
|
)
|
|
(28.6
|
)%
|
|
(12.0
|
)
|
|
(8.6
|
)
|
|
(39.5
|
)%
|
|
Eliminations
|
(1.0
|
)
|
|
—
|
|
|
n.m.
|
|
|
(1.0
|
)
|
|
—
|
|
|
n.m.
|
|
|
|
$
|
16.4
|
|
|
$
|
8.3
|
|
|
97.6
|
%
|
|
$
|
34.5
|
|
|
$
|
18.3
|
|
|
88.5
|
%
|
|
Diluted earnings per share
|
$
|
0.99
|
|
|
$
|
0.51
|
|
|
94.1
|
%
|
|
$
|
2.09
|
|
|
$
|
1.12
|
|
|
86.6
|
%
|
|
Reported income tax rate
|
10.4
|
%
|
|
29.7
|
%
|
|
|
|
19.0
|
%
|
|
12.1
|
%
|
|
|
|
(1) Bolzoni was acquired on April 1, 2016 and its results of operations have been included since the acquisition date.
|
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
June 30, 2017
, substantially all of the Company's backlog is expected to be sold within the next twelve months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
SIX MONTHS ENDED
|
|
|
|
JUNE 30
|
|
JUNE 30
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Unit backlog, beginning of period
|
|
32.2
|
|
|
29.9
|
|
|
30.7
|
|
|
26.9
|
|
|
Unit shipments
|
|
(22.2
|
)
|
|
(21.1
|
)
|
|
(45.5
|
)
|
|
(41.6
|
)
|
|
Unit bookings
|
|
25.3
|
|
|
21.7
|
|
|
50.1
|
|
|
45.2
|
|
|
Unit backlog, end of period
|
|
35.3
|
|
|
30.5
|
|
|
35.3
|
|
|
30.5
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
SIX MONTHS ENDED
|
|
|
|
JUNE 30
|
|
JUNE 30
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Bookings, approximate sales value
|
|
$
|
575
|
|
|
$
|
500
|
|
|
$
|
1,125
|
|
|
$
|
990
|
|
|
Backlog, approximate sales value
|
|
$
|
820
|
|
|
$
|
715
|
|
|
$
|
820
|
|
|
$
|
715
|
|
Second
Quarter of
2017
Compared with
Second
Quarter of
2016
The following table identifies the components of change in revenues for the
second
quarter of
2017
compared with the
second
quarter of
2016
:
|
|
|
|
|
|
|
|
|
Revenues
|
|
2016
|
$
|
645.6
|
|
|
Increase (decrease) in 2017 from:
|
|
|
Unit volume and product mix
|
34.8
|
|
|
Price
|
9.1
|
|
|
Parts
|
3.3
|
|
|
Bolzoni revenues
|
3.0
|
|
|
Foreign currency
|
(6.3
|
)
|
|
Other
|
(4.0
|
)
|
|
2017
|
$
|
685.5
|
|
Revenues increased 6.2% to
$685.5 million
in the
second
quarter of
2017
from
$645.6 million
in the
second
quarter of
2016
. The increase was mainly due to higher unit volume in the lift truck business during the second quarter of 2017 compared with the second quarter of 2016.
Revenues in the Americas increased in the second quarter of 2017 compared with the second quarter of 2016 primarily as a result of increased unit shipments of higher-priced trucks, less deal-specific pricing and increased part sales. Unit shipments increased slightly over the second quarter of 2016 driven primarily by an increase in shipments in Brazil as that market has begun to recover. Revenues increased from sales of higher-capacity, 3.5 to 8 ton Class 5 trucks, the new Class 5 internal combustion engine standard truck and Class 1 and Class 2 trucks. This increase was partly offset by fewer sales of Class 5 Big Trucks as a result of the timing of shipments.
EMEA's revenues increased in the second quarter of 2017 compared with the second quarter of 2016 mainly as a result of increased unit shipments, partially offset by unfavorable currency movements of $6.6 million from the translation of sales into U.S. dollars. The increase in unit shipments in EMEA 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, partially offset by fewer shipments of Class 3 warehouse trucks.
Revenues in JAPIC increased in the second quarter of 2017 compared with the second quarter of 2016, mainly as a result of an increase in unit shipments primarily of higher-priced Class 5 internal combustion engine trucks.
The following table identifies the components of change in operating profit for the
second
quarter of
2017
compared with the
second
quarter of
2016
:
|
|
|
|
|
|
|
|
|
Operating Profit
|
|
2016
|
$
|
11.4
|
|
|
Increase (decrease) in 2017 from:
|
|
|
Lift truck gross profit
|
8.6
|
|
|
Lift truck selling, general and administrative expenses
|
0.7
|
|
|
Nuvera operations
|
(2.2
|
)
|
|
Bolzoni operations
|
(0.2
|
)
|
|
2017
|
$
|
18.3
|
|
The Company recognized operating profit of
$18.3 million
in the
second
quarter of
2017
compared with
$11.4 million
in the
second
quarter of
2016
. The increase in operating profit was primarily due to higher lift truck gross profit, partially offset by the increase in Nuvera's operating loss. The increase in the lift truck gross profit was primarily attributable to improved pricing and higher unit shipments, partially offset by modest increases in material costs.
Operating profit in the Americas increased in the second quarter of 2017 compared with the second quarter of 2016 primarily as a result of improved gross profit mainly due to improved pricing, net of material cost inflation and production efficiencies driven by higher unit volumes. The increase in gross profit was partially offset by a shift in sales mix to lower-margin products.
Operating profit in EMEA declined in the second quarter of 2017 compared with the second quarter of 2016 as a result of lower gross profit, mainly due to higher material costs, a shift in sales mix to lower-margin products, unfavorable manufacturing variances from increased spending and unfavorable currency movements of $1.1 million, which offset the effect of higher unit shipments and lower warranty expense.
The operating loss in JAPIC increased in the second quarter of 2017 compared with the second quarter of 2016, primarily as a result of higher selling, general and administrative expenses as the Company continues to execute its strategic initiatives.
Bolzoni's operating profit decreased in the second quarter of 2017 from the second quarter of 2016 primarily due to lower gross profit, mainly from unfavorable foreign currency movements of $1.7 million, which was almost completely offset by improved product margins and the absence of $0.5 million of one-time purchase accounting adjustments recorded in the second quarter of 2016.
Nuvera's operating loss increased in the second quarter of 2017 compared with the second quarter of 2016 primarily due to increased professional fees and other general operating expenses.
The Company recognized net income attributable to stockholders of
$16.4 million
in the
second
quarter of
2017
compared with
$8.3 million
in the
second
quarter of
2016
. The increase was primarily the result of the increase in operating profit and by the change in discrete tax adjustments in the second quarter of 2017 compared with the second quarter of 2016. See Note 4 to the unaudited condensed consolidated financial statements for additional information.
First Six Months
of
2017
Compared with
First Six Months
of
2016
The following table identifies the components of change in revenues for the
first six months of 2017
compared with the
first six months of 2016
:
|
|
|
|
|
|
|
|
|
Revenues
|
|
2016
|
$
|
1,249.8
|
|
|
Increase (decrease) in 2017 from:
|
|
|
Unit volume and product mix
|
93.2
|
|
|
Bolzoni revenues
|
44.6
|
|
|
Unit price
|
10.5
|
|
|
Parts
|
10.3
|
|
|
Other
|
1.1
|
|
|
Foreign currency
|
(10.9
|
)
|
|
2017
|
$
|
1,398.6
|
|
Revenues increased 11.9% to
$1,398.6 million
in the
first six months of 2017
from
$1,249.8 million
in the
first six months of 2016
. The increase was mainly attributable to the lift truck business from higher unit and parts volumes and the favorable effect of a decrease in deal-specific pricing during the first six months of 2017 compared with the first six months of 2016. Revenues for the first six months of 2017 included Bolzoni revenues of $83.5 million compared with $38.9 million from April 1, 2016 through June 30, 2016. The increase in lift truck revenues was partially offset by unfavorable foreign currency translation.
Revenues in the Americas increased in the first six months of 2017 from the first six months of 2016 primarily as a result of increased unit shipments. Unit shipments increased primarily from shipments of the Company's new Class 5 internal combustion engine standard truck and increased shipments of higher-capacity, 3.5 to 8 ton, Class 5 trucks, as well as Class 1 and Class 2 trucks, partly offset by fewer shipments of Class 5 Big Trucks. In addition, a decrease in deal-specific pricing and an increase in parts sales also contributed to the increase in revenues in the first six months of 2017 compared with the first six months of 2016.
EMEA's revenues improved in the first six months of 2017 from the first six months of 2016 mainly as a result of increased unit shipments, partially offset by unfavorable currency movements of $13.4 million from the translation of sales into U.S. dollars. The increase in unit shipments in EMEA 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.
Revenues in JAPIC increased in the first six months of 2017 compared with the first six months of 2016, mainly as a result of an increase in unit shipments, primarily related to the new Class 5 internal combustion engine standard truck.
The following table identifies the components of change in operating profit for the
first six months of 2017
compared with the
first six months of 2016
:
|
|
|
|
|
|
|
|
|
Operating Profit
|
|
2016
|
$
|
21.1
|
|
|
Increase (decrease) in 2017 from:
|
|
|
Lift truck gross profit
|
23.0
|
|
|
Bolzoni operations
|
2.1
|
|
|
Lift truck selling, general and administrative expenses
|
1.1
|
|
|
Nuvera operations
|
(5.6
|
)
|
|
2017
|
$
|
41.7
|
|
The Company recognized operating profit of
$41.7 million
in the
first six months of 2017
compared with
$21.1 million
in the
first six months of 2016
. The increase in operating profit was primarily due to higher lift truck gross profit, partially offset by the increase in Nuvera's operating loss. The increase in the lift truck gross profit was primarily due to higher unit shipments and related production efficiencies in addition to improved pricing, partially offset by material cost inflation.
Operating profit in the Americas increased in the first six months of 2017 compared with the first six months of 2016 primarily as a result of improved gross profit mainly due to higher unit shipments and related production efficiencies in addition to improved pricing. The increase in gross profit was partially offset by material cost inflation. In addition to higher gross profit, Americas selling, general and administrative expenses declined in the first six months of 2017 compared with the first six months of 2016 primarily due to the absence of $5.7 million of prior period acquisition-related costs.
Operating profit in EMEA declined in the first six months of 2017 compared with the first six months of 2016 mainly as a result of an increase in selling, general and administrative expenses primarily from higher marketing costs which were partially offset by favorable foreign currency movements of $2.6 million. In addition, gross profit declined primarily from unfavorable currency movements of $4.2 million and material cost inflation, which offset the effect of higher unit shipments.
Operating profit in JAPIC declined in the first six months of 2017 compared with the first six months of 2016 mainly as a result of increased selling, general and administrative expenses partly offset by higher unit sales volumes and improved pricing.
Nuvera's operating loss increased in the first six months of 2017 from the first six months of 2016 primarily due to an increase of development and production start-up expenses as Nuvera began transitioning from product development to production and sales of its fuel-cell system in the second half of 2016. In addition, Nuvera had increased marketing and employee-related costs as it continued to transition from product development to commercialization and increased professional fees and other general operating expenses.
The Company recognized net income attributable to stockholders of
$34.5 million
in the
first six months of 2017
compared with
$18.3 million
in the
first six months of 2016
. The increase was primarily the result of the increase in operating profit, partially offset by the change in discrete tax adjustments in the first six months of 2017 compared with the first six months of 2016. See Note 4 to the unaudited condensed consolidated financial statements for additional information.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following tables detail the changes in cash flow for the
six months ended
June 30
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
Operating activities:
|
|
|
|
|
|
|
Net income
|
$
|
34.5
|
|
|
$
|
18.2
|
|
|
$
|
16.3
|
|
|
Depreciation and amortization
|
21.3
|
|
|
17.1
|
|
|
4.2
|
|
|
Other
|
2.8
|
|
|
(4.3
|
)
|
|
7.1
|
|
|
Working capital changes
|
81.7
|
|
|
(53.9
|
)
|
|
135.6
|
|
|
Net cash provided by (used for) operating activities
|
140.3
|
|
|
(22.9
|
)
|
|
163.2
|
|
|
Investing activities:
|
|
|
|
|
|
|
Expenditures for property, plant and equipment
|
(16.9
|
)
|
|
(17.2
|
)
|
|
0.3
|
|
|
Proceeds from the sale of assets
|
0.8
|
|
|
8.7
|
|
|
(7.9
|
)
|
|
Investments in equity securities
|
(5.6
|
)
|
|
—
|
|
|
(5.6
|
)
|
|
Business acquisitions, net of cash acquired
|
(1.0
|
)
|
|
(107.7
|
)
|
|
106.7
|
|
|
Net cash used for investing activities
|
(22.7
|
)
|
|
(116.2
|
)
|
|
93.5
|
|
|
Cash flow before financing activities
|
$
|
117.6
|
|
|
$
|
(139.1
|
)
|
|
$
|
256.7
|
|
Net cash provided by (used for) operating activities increased $163.2 million in the first six months of 2017 compared with the first six months of 2016 primarily as a result of the change in working capital items and the increase in net income. The change in working capital was mainly due to accounts payable in the Americas returning to normalized levels as of June 30, 2017 following an unplanned systems-related acceleration of supplier payments in December 2016 and lower payments of amounts accrued, primarily in the Americas, in the first six months of 2017 compared with the first six months of 2016.
The change in net cash used for investing activities during the first six months of 2017 compared with the first six months of 2016 is mainly the result of the acquisition of Bolzoni in the second quarter of 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
Financing activities:
|
|
|
|
|
|
|
Net increases of long-term debt and revolving credit agreements
|
$
|
91.2
|
|
|
$
|
42.3
|
|
|
$
|
48.9
|
|
|
Cash dividends paid
|
(9.9
|
)
|
|
(9.5
|
)
|
|
(0.4
|
)
|
|
Financing fees paid
|
(5.0
|
)
|
|
(1.6
|
)
|
|
(3.4
|
)
|
|
Other
|
(0.3
|
)
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
Net cash provided by financing activities
|
$
|
76.0
|
|
|
$
|
31.0
|
|
|
$
|
45.0
|
|
Net cash provided by financing activities increased $45.0 million during the first six months of 2017 compared with the first six months of 2016. The increase in the first six months of 2017 was due to borrowings under the Term Loan (as defined below), partially offset by repayments of borrowings under the Facility (as defined below) during the first six months of 2017, primarily due to the unplanned systems-related acceleration of supplier payments in December 2016. The increase in the first six months of 2016 was due to borrowings under the Facility (as defined below) related to the acquisition of Bolzoni.
Financing Activities
The Company has a
$200.0 million
secured, floating-rate revolving credit facility (the "Facility”) that expires in April 2022. On May 30, 2017, the Company amended the Facility to, among other things, permit term loans and related liens, reduce the availability from $240.0 million and extend the expiration of the Facility from April 2021. There were
no
borrowings outstanding under the Facility at
June 30, 2017
. The excess availability under the Facility at
June 30, 2017
was
$194.0 million
, which reflects reductions of
$6.0 million
for letters of credit and other restrictions. The Facility consists of a U.S. revolving credit facility 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
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
June 30, 2017
.
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, effective
June 30, 2017
, for U.S. base rate loans and LIBOR loans were
0.50%
and
1.50%
, respectively. The applicable margin, effective
June 30, 2017
, for non-U.S. base rate loans and LIBOR loans was
1.50%
. The applicable LIBOR interest rates under the Facility on
June 30, 2017
were
2.75%
and
1.50%
, 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
June 30, 2017
.
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 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 June 30, 2017, the Company was in compliance with the covenants in the Facility.
On May 30, 2017, the Company entered into an agreement for a $200.0 million term loan (the “Term Loan”), which matures on May 30, 2023. The Term Loan requires
quarterly principal payments on the last day of each March, June, September and December commencing September 30, 2017 in an amount equal to $2.5 million and the final principal repayment due on the May 30, 2023
. The Company may also be required to make mandatory prepayments, in certain circumstances, as provided in the Term Loan. At June 30, 2017, there was
$200.0 million
of principle outstanding under the Term Loan which has been reduced by
$4.8 million
of discounts and unamortized deferred financing fees in the unaudited condensed consolidated balance sheet.
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
$650 million
as of
June 30, 2017
, which includes the book value of the assets securing the Facility.
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 is based on the consolidated leverage ratio, as provided in the Term Loan, and ranges from 2.75% to 3.00% for U.S. base rate loans and 3.75% to 4.00% for Eurodollar loans. The weighted average interest rate on the amount outstanding under the Term Loan at
June 30, 2017
was
5.23%
.
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.
The Term Loan also contains a provision requiring a premium to be paid in the event of a repricing of the borrowings under the Term Loan, whether by amendment or entry into new loans, within the six month period following entry into the Term Loan. At
June 30, 2017
, the Company was in compliance with the covenants in the Term Loan.
The Company incurred fees and expenses of
$5.0 million
in 2017 related to the amendment of 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
$82.0 million
at
June 30, 2017
. In addition to the excess availability under the Facility, the Company had remaining availability of
$43.6 million
related to other non-U.S. revolving credit agreements.
The Company believes funds available from cash on hand, 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.
Contractual Obligations, Contingent Liabilities and Commitments
On May 30, 2017, the Company entered into the Term Loan which matures on May 30, 2023. The Company used the borrowings under the Term Loan to repay borrowings under the Facility and plans to use the remaining proceeds from the Term Loan to fund any future acquisitions and strategic investments and for general corporate purposes. In addition, the Company also entered into an amendment to the Facility during the second quarter of 2017.
Following is a table summarizing the Term Loan and the Facility, as amended, as of
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
Contractual Obligations
|
Total
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
Thereafter
|
|
Term Loan
|
$
|
200.0
|
|
|
$
|
5.0
|
|
|
$
|
10.0
|
|
|
$
|
10.0
|
|
|
$
|
10.0
|
|
|
$
|
10.0
|
|
|
$
|
155.0
|
|
|
Interest payments on Term Loan
|
51.2
|
|
|
5.0
|
|
|
9.7
|
|
|
9.2
|
|
|
8.7
|
|
|
8.2
|
|
|
10.4
|
|
|
Total debt
|
$
|
251.2
|
|
|
$
|
10.0
|
|
|
$
|
19.7
|
|
|
$
|
19.2
|
|
|
$
|
18.7
|
|
|
$
|
18.2
|
|
|
$
|
165.4
|
|
Since
December 31, 2016
, there have been no other significant changes in the total amount of the Company's contractual obligations or commercial commitments, or the timing of cash flows in accordance with those obligations, as reported on pages 26 and 27 in the Company's Annual Report on Form 10-K for the year ended
December 31, 2016
.
Capital Expenditures
The following table summarizes actual and planned capital expenditures:
|
|
|
|
|
|
|
|
|
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Six Months Ended June 30, 2017
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Planned for Remainder of 2017
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Planned 2017 Total
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Actual 2016
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Lift truck business
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|
$
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12.9
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$
|
27.5
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$
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40.4
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$
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36.5
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Bolzoni
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|
3.1
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|
|
4.5
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|
|
7.6
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|
|
4.0
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|
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Nuvera
|
|
0.9
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|
|
3.0
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|
|
3.9
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|
|
2.2
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|
|
|
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$
|
16.9
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|
|
$
|
35.0
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|
|
$
|
51.9
|
|
|
$
|
42.7
|
|
Planned expenditures for the remainder of
2017
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
The Company's capital structure is presented below:
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JUNE 30
2017
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DECEMBER 31
2016
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Change
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|
Cash and cash equivalents
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$
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239.9
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$
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43.2
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$
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196.7
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Other net tangible assets
|
477.6
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|
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531.5
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(53.9
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)
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Intangible assets
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57.4
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56.2
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|
|
1.2
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Goodwill
|
55.7
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|
|
50.7
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|
|
5.0
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|
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Net assets
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830.6
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|
|
681.6
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|
|
149.0
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Total debt
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(300.4
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)
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(211.2
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)
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(89.2
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)
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Total equity
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$
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530.2
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$
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470.4
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$
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59.8
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Debt to total capitalization
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36
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%
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|
31
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%
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5
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%
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OUTLOOK
Americas Outlook
Growth in the Americas market in the first half of 2017 has been stronger than anticipated. In the remainder of 2017, the Company expects the Americas market to improve modestly from the strong market experienced in the second half of 2016 and in the first half of 2017. Unit shipments and revenues are expected to increase in the second half of 2017 compared with the same period in 2016 and compared with the first half of 2017 as a result of the strong market and an increase in sales of higher-priced Class 1 electric trucks and Class 5 internal combustion engine trucks, including Big Trucks.
Despite the revenue increase, second-half 2017 operating profit in the Americas segment is expected to be comparable to the second half of 2016 and down from the strong first half of 2017. An anticipated substantial decrease in the third quarter is expected to be offset by improvements in the fourth quarter on anticipated volume increases. The decrease in the third quarter operating profit is expected to be driven primarily by an increase in selling, general and administrative expenses and higher material costs, which are expected to offset benefits of increased sales of higher-priced trucks. The anticipated fourth-quarter 2017 improvement is largely due to an expected increase in sales volumes of higher-priced Class 5 internal combustion engine trucks, including Big Trucks, as well as an expected improvement in product pricing, partially offset by material cost inflation and higher operating expenses.
EMEA Outlook
All markets in EMEA are expected to continue to grow in the second half of 2017 but at a more moderate rate than in the strong second half of 2016 and first half of 2017. Unit and parts revenues are expected to increase in the second half of 2017 as a result of the overall market conditions, an increase in sales of lower-priced Class 2 electric trucks and lower-range, 1 to 3.5 ton Class 5 internal combustion engine trucks. In addition, anticipated benefits from favorable current currency rates are expected to contribute to the revenue increase. The revenue improvements are expected to be partially offset by a shift in mix away from higher-priced Class 5 Big Trucks to these lower-priced units.
EMEA is expected to generate an operating loss in the second half of 2017, which is expected to fully offset the operating income from the first half of 2017, and result in a substantial decrease from the prior year. The anticipated favorable impact of improvements in unit and parts revenues and benefits expected from the weakening U.S. dollar are anticipated to be more than offset by material cost inflation, higher operating expenses and the shift in sales to lower-priced, lower-margin products. A substantial decline is expected in the third quarter, with results improving in the fourth quarter.
JAPIC Outlook
The JAPIC market is expected to continue to grow in the second half of 2017, driven primarily by China, but at a more moderate rate than in the prior year and first half of 2017. The JAPIC region, excluding China, is expected to have modest growth in the second half of 2017 compared with the second half of 2016. As a result of the continued implementation of the Company's strategic initiatives, revenues and operating results are expected to improve during the second half of 2017, primarily in the fourth quarter, compared with the same period in 2016. This improvement is expected to be driven by increased unit and parts volumes and a shift in mix to higher-margin Class 5 internal combustion engine trucks.
Overall Lift Truck Outlook
The Company remains focused on gaining market share in its Lift Truck business through the continued implementation of its key strategic initiatives of understanding customer needs, providing the lowest cost of ownership over the life-cycle of the truck, enhancing its independent distribution, increasing its warehouse market position, increasing the Company's success in the Asia markets, increasing its Big Truck market position, strengthening its sales and marketing organization, and leveraging its solutions and technology drivers.
To meet customer needs, the Company is developing new products in many segments that are expected to support its market share growth. Shipments of the new standard 2.0-3.0 ton Class 5 internal combustion engine lift truck and the Company's new European 1-1.6 ton pedestrian pallet stacker began late in the fourth quarter of 2016. In April 2017, the Company launched its new ReachStacker model dedicated solely to container-handling applications in defined markets. All of these products have been well-received and are gaining traction. These new products, as well as the introduction of other new products in the pipeline, are expected to help increase market share, improve revenues and enhance operating margins in the remainder of 2017 and in the long term.
In the first half of 2017, the global lift truck market remained strong and, with this stronger than expected market, the Company has focused on a carefully paced ramp up in production and achievement of price goals, while maintaining a healthy backlog to manage production efficiencies. In the remainder of 2017, the global lift truck market is expected to maintain its strength but the pace of growth is expected to moderate compared with both the second half of 2016 and the first half of 2017.
Unit shipments and unit and parts revenues in the Lift Truck business are expected to increase during the second half of 2017 compared with the same period in 2016.
Despite an increase in revenues, Lift Truck operating profit is expected to decrease in the second half of 2017 compared with the second half of 2016, driven primarily by an anticipated significant decrease in the third quarter of 2017, as higher unit volumes and anticipated benefits from favorable current currency rates are expected to be more than offset by higher operating costs and material cost inflation, net of price increases. Overall, full-year 2017 net income is expected to increase modestly over 2016 as anticipated benefits from the improvement in full-year operating profit are expected to be partially offset by a higher income tax rate and the absence of tax benefits recognized in 2016.
Commodity costs are expected to continue to increase in the remainder of 2017 from the low 2016 levels. Commodities, particularly steel, remain volatile and sensitive to changes in the global economy and the Company will continue to monitor these closely and adjust pricing accordingly.
Bolzoni Outlook
The majority of Bolzoni's revenues are generated in the EMEA market, primarily Western and Eastern Europe, and, to a lesser degree, in the North America market. As a result of anticipated strong growth in the EMEA markets, recent major customer commitments and the implementation of sales enhancement programs, Bolzoni expects revenues in the second half of 2017 to increase over the second half of 2016.
In addition to the anticipated increase in revenues and the expected operating leverage resulting from the sales growth, the implementation of several key strategic programs are expected to generate substantial growth in Bolzoni's operating profit and net income in the remainder of 2017 compared with the second half of 2016, excluding the effect of one-time purchase accounting adjustments of $2.6 million recognized in the third quarter of 2016.
Nuvera Outlook
Progress continues to be made at Nuvera with a gradual build-up of orders of first-generation battery box replacements, growing customer interest and engagement of the dealer network. During the second quarter of 2017, Nuvera received additional orders for first-generation battery box replacements from both end users and Hyster-Yale dealers. As a result of a shipment hold on a key supplier component, no shipments of the battery box replacements were made during the second quarter, but are expected to commence in the third quarter now that the supplier's shipment issues have been resolved. Nuvera's backlog is expected to grow during the third quarter of 2017 as dealer training and ongoing customer demonstrations are completed.
The Company previously announced an organizational realignment designed to enhance the overall strategic positioning and operational effectiveness of the fuel cell business, with Nuvera focused on fuel cell stacks, engines and associated components and the Lift Truck business focused on battery box replacements and integrated engine solutions. The realignment is progressing as expected and improvements in the process are being realized. Design responsibility for the next generation of battery box replacements has fully transitioned to the Lift Truck business' development center and design work is progressing on 14- and 18-inch battery box designs, which are necessary for many high density warehouse applications, and which are expected to be launched in the first half of 2018. The dedicated design team is also expected to implement a design review of existing products to increase quality and reliability to industry best levels, which include development of the supplier base. The Lift Truck business expects to integrate fuel cell manufacturing, whether for battery box replacement solutions or fully integrated fuel cell solutions, into existing manufacturing plants, initially in North America and eventually into other plants over the long term.
The transition of sales responsibility for the battery box replacements from Nuvera to the Lift Truck business has been completed. At this time, the Lift Truck business' sales team is focused on applications for the current range of battery box replacements that meet the needs of its core industry segment. Demand is expected to accelerate in 2018 as new products are launched.
Nuvera expects to phase out of battery box replacement production and focus solely on the manufacture of fuel cell engines during 2018. Nuvera will have additional support for its fuel cell engine business from the Lift Truck business' supply chain and quality enhancement units. Plans for the European launch of battery box replacements are advancing and work continues on the development of the next generation of fuel cell stacks, an electrochemical compressor and the Nuvera
®
Hydrogen Generator. Discussions with several third parties are encouraging and fuel cell engine orders from certain OEM’s are in process. Nuvera is seeing increased interest from China. Shipments of a modest number of these engines are expected to start in the third quarter of 2017.
Until Nuvera’s target cost structure for its fuel cell engines is in place through supply chain and manufacturing efficiencies, inventory costs are expected to result in continued inventory adjustments to reflect current selling prices, but at a decreasing rate. Nuvera’s losses are expected to progressively decrease over the second half of 2017 and in 2018. The net impact of added operational expenses on the Lift Truck business is expected to be modest as existing resources are re-deployed to focus on the sale, development and manufacture of battery box replacements and integrated engine solutions.
Nuvera continues to focus on lowering the costs of manufacturing its fuel cell engines and enhancing their reliability increasingly over future quarters, with the objective of reaching quarterly break-even during 2018 by achieving target costs and target fuel cell engine volumes. To achieve this will require a significant ramp up in volume. An assessment will be made during the third quarter about whether the target for 2018 is achievable or if 2019 is more realistic given the slower pace of product introduction as Nuvera focuses on developing superior solutions at target costs. Securing one or more of the third-party deals under discussion would accelerate achievement of the break-even goal.
Customers are increasingly seeing the benefit of fuel cell power. The Company believes that demand for Nuvera solutions will continue to increase. The Company also believes that the commercialization of Nuvera fuel cell-related technologies will reinforce the Company’s core strategies and help drive further lift truck unit market share growth, as well as meet core customer needs. It also provides the Lift Truck business with the ability to expand its power solutions offerings to provide best-in-class energy solutions to its customers by integrating fuel cells with lift trucks in ways that are expected to optimize the performance and energy efficiency of the total lift truck system.
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. See also Item 3, "Quantitative and Qualitative Disclosures About Market Risk,” in Part I of this Quarterly Report on Form 10-Q.
FORWARD-LOOKING STATEMENTS
The statements contained in this Form 10-Q 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) 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, (3) the political and economic uncertainties in the countries where the Company does business, (4) customer acceptance of pricing, (5) delays in delivery or increases in costs, including transportation costs, of raw materials or sourced products and labor or changes in or unavailability of quality suppliers, (6) exchange rate fluctuations, changes in import tariffs and monetary policies and other changes in the regulatory climate in the countries in which the Company operates and/or sells products, (7) delays in manufacturing and delivery schedules, (8) bankruptcy of or loss of major dealers, retail customers or suppliers, (9) customer acceptance of, changes in the costs of, or delays in the development of new products, (10) introduction of new products by, or more favorable product pricing offered by, competitors, (11) product liability or other litigation, warranty claims or returns of products, (12) the effectiveness of the cost reduction programs implemented globally, including the successful implementation of procurement and sourcing initiatives, (13) changes mandated by federal, state and other regulation, including tax, health, safety or environmental legislation, (14) the successful commercialization of Nuvera's technology and (15) unfavorable effects of the United Kingdom's exit from the European Union on global operations.