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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549
FORM 10-K
(Mark One) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-54799
HYSTER-YALE MATERIALS HANDLING, INC.(Exact name of registrant as specified in its charter)
Delaware(State or other jurisdiction of incorporation or organization)
31-1637659(I.R.S. Employer Identification No.)
5875 Landerbrook Drive, Suite 300, Cleveland, Ohio
(Address of principal executive offices) 44124-4069(Zip Code)
Registrant's telephone number, including area code: (440) 449-9600Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Class A Common Stock, Par Value $0.01 Per Share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:Class B Common Stock, Par Value $0.01 Per Share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES xx NO o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submitand post such files). YES x NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best ofregistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company.See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þþ Accelerated filer o Non-accelerated filer o Smaller reporting company o Emerging growth company o
(Do not check if a smaller
reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES o NO x
Aggregate market value of Class A Common Stock and Class B Common Stock held by non-affiliates as of June 30, 2017 (the last business day of the registrant's most recentlycompleted second fiscal quarter): $783,867,203
Number of shares of Class A Common Stock outstanding at February 23, 2018 : 12,566,715Number of shares of Class B Common Stock outstanding at February 23, 2018 : 3,899,006
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its 2018 annual meeting of stockholders are incorporated herein by reference in Part III of this Form 10-K.
HYSTER-YALE MATERIALS HANDLING, INC.TABLE OF CONTENTS
PAGE
PART I.
Item 1. BUSINESS 1
Item 1A. RISK FACTORS 5
Item 1B. UNRESOLVED STAFF COMMENTS 9
Item 2. PROPERTIES 10
Item 3. LEGAL PROCEEDINGS 10
Item 4. MINE SAFETY DISCLOSURES 10
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT 11
PART II.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES12
Item 6. SELECTED FINANCIAL DATA 13
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 35
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 35
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 35
Item 9A. CONTROLS AND PROCEDURES 35
Item 9B. OTHER INFORMATION 36
PART III.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 36
Item 11. EXECUTIVE COMPENSATION 36
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS36
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 37
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 37
PART IV.
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 37
SIGNATURES 43FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1
Table of Contents
PART IItem 1. BUSINESS
General
Hyster-Yale Materials Handling, Inc. ("Hyster-Yale" or the "Company") and its subsidiaries, including its operating company Hyster-Yale Group, Inc. ("HYG"), isa leading, globally integrated, full-line lift truck manufacturer. The Company offers a broad array of solutions aimed at meeting the specific materials handlingneeds of its customers, including attachments and hydrogen fuel cell power products, telematics, automation and fleet management services, as well as a variety ofother power options for its lift trucks. The Company, headquartered in Cleveland, Ohio, through HYG designs, engineers, manufactures, sells and services acomprehensive line of lift trucks, attachments and aftermarket parts marketed globally primarily under the Hyster ® and Yale ® brand names, mainly to independentHyster ® and Yale ® retail dealerships. Lift trucks and component parts are manufactured in the United States, Northern Ireland, Mexico, the Netherlands, Italy,Vietnam, the Philippines, Japan, Brazil and China. Hyster-Yale was incorporated as a Delaware corporation in 1999.
The Company operates Bolzoni S.p.A. ("Bolzoni"). Bolzoni is a leading worldwide producer of attachments, forks and lift tables marketed under the BolzoniAuramo ® and Meyer ® brand names. Bolzoni products are manufactured in Italy, China, Germany, Finland and the United States. Through the design, productionand 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 operates Nuvera Fuel Cells, LLC ("Nuvera"). Nuvera is an alternative-power technology company focused on fuel cell stacks and engines. Nuveraalso supports on-site hydrogen production and dispensing systems that are designed to deliver clean energy solutions to customers.
The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reportsavailable, free of charge, through its website, www.hyster-yale.com, as soon as reasonably practicable after such material is electronically filed with, or furnishedto, the Securities and Exchange Commission (“SEC”).
Business Segments
The Company operates five reportable segments: the Americas, EMEA, JAPIC, Bolzoni and Nuvera. See Note 3 to the consolidated financial statements in thisAnnual Report on Form 10-K for further discussion.
Manufacturing and Assembly
The Company manufactures components, such as frames, masts and transmissions, and assembles lift trucks in the market of sale whenever practical to minimizefreight cost and balance currency mix. In some instances, however, it utilizes one worldwide location to manufacture specific components or assemble specific lifttrucks. Additionally, components and assembled lift trucks are exported when it is advantageous to meet demand in certain markets. The Company operates twelvelift truck manufacturing and assembly facilities worldwide with five plants in the Americas, three in EMEA and four in JAPIC, including joint venture operations.In addition, the Company operates seven Bolzoni manufacturing facilities worldwide.
Sales of lift trucks represented approximately 77% of the Company’s annual revenues in 2017 (approximately 48% internal combustion engine units andapproximately 29% electric units), and 77% and 82% in 2016 and 2015 , respectively. Service, rental and other revenues were approximately 5% in 2017 , 6% in2016 and 5% in 2015 . Bolzoni's revenues were approximately 5% in 2017 and 4% in 2016 .
During 2017 , the Company’s retail shipments of lift trucks in North America by end market were approximately 23% to the food and beverage market,approximately 14% to the logistics market, approximately 14% to the natural resource and materials market, approximately 13% to the consumer and businesstrade market, approximately 13% to the manufacturing market, approximately 12% to the rental market and approximately 11% to the durable goods market.
Aftermarket Parts
The Company offers a line of aftermarket parts to service its large installed base of lift trucks currently in use in the industry. The Company offers online technicalreference databases specifying the required aftermarket parts to service lift trucks and an aftermarket parts ordering system. Aftermarket parts sales representedapproximately 13% of the Company’s annual revenues in each of 2017 , 2016 and 2015 .
The Company sells Hyster ® - and Yale ® -branded aftermarket parts to dealers for Hyster ® and Yale ® lift trucks. The Company also sells aftermarket parts underthe UNISOURCE™ and PREMIER™ brands to Hyster ® and Yale ® dealers for the service of
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competitor lift trucks. The Company has a contractual relationship with a third-party, multi-brand, aftermarket parts wholesaler in the Americas and EMEAwhereby orders from the Company's dealers for parts for lift trucks are fulfilled by the third party who then pays the Company a commission.
Marketing
The Company’s marketing organization is structured in three regional divisions: the Americas; EMEA, which includes Europe, the Middle East and Africa; andJAPIC, which includes Japan, Asia, Pacific, India and China. In each region, certain marketing support functions for the Hyster ® and Yale ® brands are carried outby shared-services teams. These activities include sales and service training, information systems support, product launch coordination, specialized sales materialdevelopment, help desks, order entry, marketing strategy and field service support.
Patents, Trademarks and Licenses
The Company relies on a combination of trade secret protection, trademarks, copyrights, and patents to establish and protect the Company's proprietary rights.These intellectual property rights may not have commercial value or may not be sufficiently broad to protect the aspect of the Company's technology to which theyrelate or competitors may design around the patents. The Company is not materially dependent upon patents or patent protection; however, as materials handlingequipment has become more technologically advanced, the Company and its competitors have increasingly sought patent protection for inventions incorporatedinto their respective products. The Company owns the Hyster ® ,Yale ® , Bolzoni Auramo ® , Meyer ® and Nuvera ® trademarks and believes these trademarks arematerial to its business.
Distribution Network
The Company distributes lift trucks and attachments primarily through two channels: independent dealers and a National Accounts program. In addition, theCompany distributes aftermarket parts and service for its lift trucks through its independent dealers. The Company’s end-user base is diverse and fragmented,including, among others, light and heavy manufacturers, trucking and automotive companies, rental companies, building materials and paper suppliers, lumber,metal products, warehouses, retailers, food distributors, container handling companies and U.S. and non-U.S. governmental agencies.
Independent Dealers
The Company’s dealers, located in 129 countries, are generally independently owned and operated. As of December 31, 2017 , Hyster ® had 20 independentdealers and Yale ® had 32 independent dealers in the Americas. Hyster ® had 66 independent dealers and Yale ® had 94 independent dealers in EMEA and Hyster ®had 43 independent dealers and Yale ® had 13 independent dealers in JAPIC. As of December 31, 2017 , the Company had 26 dual-branded dealers in theAmericas, four in EMEA and three in JAPIC.
National Accounts
The Company operates a National Accounts program for both Hyster ® and Yale ® . The National Accounts program focuses on large customers with centralizedpurchasing and geographically dispersed operations in multiple dealer territories. The National Accounts program accounted for 17%, 17% and 16% of new lifttruck unit volume in 2017 , 2016 and 2015 , respectively. The independent dealers support the National Accounts program by providing aftermarket parts andservice on a local basis. Dealers receive a commission for the support they provide in connection with National Accounts sales and for the preparation and deliveryof lift trucks to customer locations. In addition to selling new lift trucks, the National Accounts program markets services, including full maintenance leases andfleet management.
Financing of Sales
The Company is engaged in a joint venture with Wells Fargo Financial Leasing, Inc. (“WF”) to provide dealer and customer financing of new lift trucks in theUnited States. The Company owns 20% of the joint venture entity, HYG Financial Services, Inc. ("HYGFS"), and receives fees and remarketing profits under ajoint venture agreement. This agreement has a base term of five years and automatically renews for additional one-year terms unless written notice is given byeither party at least 180 days prior to termination. The expiration of the base term is December 2018. The Company accounts for its ownership of HYGFS usingthe equity method of accounting.
Under the joint venture agreement with HYGFS, the Company’s dealers and certain customers are extended credit for the purchase of lift trucks to be placed in thedealer’s floor plan inventory or the financing of lift trucks that are sold or leased to customers. For some of these arrangements, the Company provides recourse orrepurchase obligations to HYGFS or to others. In substantially all of these transactions, a perfected security interest is maintained in the lift trucks financed, so thatin the event of a default, the Company has the ability to take title to the assets financed and sell it through the Hyster ® or Yale ® dealer
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network. Furthermore, the Company has established reserves for exposures under these agreements when required. In addition, the Company has an agreementwith WF to limit its exposure to losses at certain eligible dealers. Under this agreement, losses related to guarantees for these certain eligible dealers are limited to7.5% of their original loan balance. See Notes 17 and 18 to the Consolidated Financial Statements in this Annual Report on Form 10-K for further discussion.
Backlog
The following table outlines the Company's backlog of unfilled orders placed with its manufacturing and assembly operations for new lift trucks:
December 31, 2017 September 30, 2017 December 31, 2016
Units (in thousands) 33.8 35.1 30.7Backlog, approximate sales value (in millions) $ 860 $ 860 $ 740
As of December 31, 2017 , the Company expects substantially all of its backlog of unfilled orders placed with its manufacturing and assembly operations for newlift trucks to be sold during fiscal 2018 . Backlog represents unfilled lift truck orders placed with the Company’s manufacturing and assembly facilities fromdealers and National Account customers. In general, unfilled orders may be canceled at any time prior to the time of sale; however, the Company can assesscancellation penalties on dealer orders within a certain period prior to initiating production. The dollar value of backlog is calculated using the current unit backlogand the forecasted average sales price per unit.
Key Suppliers and Raw Materials
At times, the Company has experienced significant increases in material costs, primarily as a result of global price increases in industrial metals including steel,lead and copper and other commodity products, such as rubber, as a result of increased demand and limited supply. While the Company attempts to pass theseincreased costs along to its customers in the form of higher prices for its products, it may not be able to fully offset the increased costs of industrial metals andother commodities, due to overall market conditions and the lag time involved in implementing price increases for its products.
A significant raw material required by the Company's manufacturing operations is steel, which is generally purchased from steel producing companies in thegeographic area near each of the Company's manufacturing facilities. Other significant components for the Company's lift trucks are axles, brakes, transmissions,batteries and chargers. These components are available from numerous sources in quantities sufficient to meet the Company's requirements. The Company dependson a limited number of suppliers for some of the Company's crucial components, including diesel and gasoline engines, which are supplied by, among others,Power Solutions International, Inc., Kubota Corp., and Cummins Inc., and cast-iron counterweights used to counter balance some lift trucks, which are obtainedfrom, among others, North Vernon Industry Corp. and Eagle Quest International Ltd. Some of these critical components are imported and subject to regulations,such as customary inspection by the U.S. Customs and Border Protection under the auspices of the U.S. Department of Homeland Security, as well as theCompany's own internal controls and security procedures. The Company believes comparable alternatives are available for all suppliers.
Competition
The Company is one of the leaders in the lift truck industry with respect to market share in the Americas and worldwide. Competition in the materials handlingindustry is intense and based primarily on strength and quality of dealers, brand loyalty, customer service, new lift truck sales prices, availability of products andaftermarket parts, comprehensive product line offerings, product performance, product quality and features and the cost of ownership over the life of the lift truck.The Company competes with several global lift truck manufacturers that operate in all major markets, as well as other niche companies. The lift truck industry alsocompetes with alternative methods of materials handling, including conveyor systems and automated guided vehicles and systems.
The Company's aftermarket parts offerings compete with parts manufactured by other lift truck manufacturers, as well as companies that focus solely on the sale ofgeneric parts.
The use of fuel-cell technology in industrial and commercial applications is a relatively new development. Companies implementing such technology facecompetitors that integrate more traditional energy technologies into their product lines, as well as competitors that have implemented or are implementingalternatives to traditional energy technologies, such as lithium batteries, fuel additives and other high efficiency or “renewable” technologies.
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Cyclical Nature of Lift Truck Business
The Company’s lift truck business historically has been cyclical. Fluctuations in the rate of orders for lift trucks, attachments and fuel-cell technology reflect thecapital investment decisions of the Company’s customers, which depend to a certain extent on the general level of economic activity in the various industries thelift truck customers serve. During economic downturns, customers tend to delay new lift truck and parts purchases. Consequently, the Company has experienced,and in the future may continue to experience, significant fluctuations in its revenues and net income.
Research and Development
The Company’s lift truck research and development capability is organized around four major engineering centers, all coordinated on a global basis by theCompany’s global executive administrative center. Products are designed for each brand concurrently and generally each center is focused on the globalrequirements for a single product line. The Company’s counterbalanced development center, which has global design responsibility for several classes of lift trucksfor a highly diverse customer base, is located in Fairview, Oregon. The Company’s big truck development center is located in Nijmegen, the Netherlands, adjacentto a dedicated global big truck assembly facility. Big trucks are primarily used in handling shipping containers and other specialized heavy lifting applications,including steel, concrete and energy-related industries. Warehouse trucks, which are primarily used in distribution applications, are designed based on regionaldifferences in stacking and storage practices. The Company designs warehouse equipment for sale in the Americas market in Greenville, North Carolina, adjacentto the Americas manufacturing and assembly facility. The Company designs warehouse equipment for the European market in Masate, Italy adjacent to itsmanufacturing and assembly facility for warehouse equipment. The Company also has an engineering Concept Center in the United Kingdom to support advanceddesign activities and an engineering office in India to support its global design activities for its four major engineering centers.
The Company’s lift truck engineering centers utilize a three-dimensional CAD/CAM system and are interconnected, with each of the Company’s manufacturingand assembly facilities and certain suppliers. This allows for collaboration in technical engineering designs and collaboration with these suppliers. Additionally, theCompany solicits customer feedback throughout the design phase to improve product development efforts. The Company invested $80.8 million, $74.1 million and$69.1 million on lift truck product and attachment design and development activities in 2017 , 2016 and 2015 , respectively.
Nuvera has two research and development locations. In the U.S., Billerica, Massachusetts is the primary location for design, development and testing of fuel-cellstacks and engines. In Europe, the operations at San Donato, Italy are primarily focused on fuel-cell systems integration and testing. The Company invested $23.7million, $32.9 million and $19.2 million on product design and development activities at Nuvera in 2017 , 2016 and 2015, respectively.
Sumitomo-NACCO Joint Venture
The Company has a 50% ownership interest in Sumitomo NACCO Forklift Co., Ltd. (“SN”), a limited liability company that was formed in 1970 primarily tomanufacture and distribute Sumitomo-branded lift trucks in Japan and export Hyster ® - and Yale ® -branded lift trucks and related components and service partsoutside of Japan. Sumitomo Heavy Industries, Ltd. owns the remaining 50% interest in SN. Each stockholder of SN is entitled to appoint directors representing50% of the vote of SN’s board of directors. All matters related to policies and programs of operation, manufacturing and sales activities require mutual agreementbetween the Company and Sumitomo Heavy Industries, Ltd. prior to a vote of SN’s board of directors. As a result, the Company accounts for its ownership in SNusing the equity method of accounting. The Company purchases Hyster ® - and Yale ® -branded lift trucks and related component and aftermarket parts from SNfor sale outside of Japan under agreed-upon terms. The Company also contracts with SN for engineering design services on a cost plus basis and charges SN fortechnology used by SN but developed by the Company. During 2017 , SN sold approximately 6,900 lift trucks.
Employees
As of January 31, 2018 , the Company had approximately 6,800 employees. Certain employees in the Danville, Illinois parts depot operations are unionized. TheCompany’s contract with the Danville union expires in June 2018. Employees at the facilities in Berea, Kentucky; Sulligent, Alabama; and Greenville, NorthCarolina are not represented by unions. In Brazil, all employees are represented by a union. The Company’s contracts with the Brazilian unions expire annually atwhich time salaries and certain benefits are negotiated for the following year. In Mexico, certain employees are unionized. The Company’s contract with theMexico union expires annually in March, at which time salaries are negotiated for the following year. Benefits in Mexico are negotiated every other year.
In Europe, certain employees in the Helsinki, Finland; Salzgitter, Germany; Craigavon, Northern Ireland; Masate, Italy; Piacenza, Italy; San Donato, Italy; andNijmegen, the Netherlands facilities are unionized. All of the European employees are part of works councils that perform a consultative role on business andemployment matters.
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The Company believes its current labor relations with both union and non-union employees are generally satisfactory. However, there can be no assurances that theCompany will be able to successfully renegotiate its union contracts without work stoppages or on acceptable terms. A prolonged work stoppage at a unionizedfacility could have a material adverse effect on the Company’s business and results of operations.
Environmental Matters
The Company’s manufacturing operations are subject to laws and regulations relating to the protection of the environment, including those governing themanagement and disposal of hazardous substances. The Company’s policies stress compliance, and the Company believes it is currently in substantial compliancewith existing environmental laws. If the Company fails to comply with these laws or its environmental permits, it could incur substantial costs, including cleanupcosts, fines and civil and criminal sanctions. In addition, future changes to environmental laws could require the Company to incur significant additional expense orrestrict operations. Based on current information, the Company does not expect compliance with environmental requirements to have a material adverse effect onthe Company’s financial condition or results of operations.
The Company’s products may also be subject to laws and regulations relating to the protection of the environment, including those governing vehicle exhaust.Regulatory agencies in the United States and Europe have issued or proposed various regulations and directives designed to reduce emissions from spark-ignitedengines and diesel engines used in off-road vehicles, such as industrial lift trucks. These regulations require the Company and other lift truck manufacturers toincur costs to modify designs and manufacturing processes and to perform additional testing and reporting. While there can be no assurance, the Company believesthe impact of the additional expenditures to comply with these requirements will not have a material adverse effect on its business.
The Company is investigating or remediating historical contamination at some current and former sites caused by its operations or those of businesses it acquired.While the Company is not currently aware that any material outstanding claims or obligations exist with regard to these sites, the discovery of additionalcontamination at these or other sites could result in significant cleanup costs that could have a material adverse effect on the Company’s financial conditions andresults of operations.
In connection with any acquisition made by the Company, the Company could, under some circumstances, be held financially liable for or suffer other adverseeffects due to environmental violations or contamination caused by prior owners of businesses the Company has acquired. In addition, under some of theagreements through which the Company has sold businesses or assets, the Company has retained responsibility for certain contingent environmental liabilitiesarising from pre-closing operations. These liabilities may not arise, if at all, until years later and could require the Company to incur significant additionalexpenses.
Government and Trade Regulations
In the past, the Company’s business has been affected by trade disputes between the United States and Europe. In the future, to the extent the Company is affectedby trade disputes with other foreign jurisdictions, and increased tariffs are levied on its goods, its results of operations may be materially adversely affected.
Item 1A. RISK FACTORS
The lift truck business is cyclical. Any downturn in the general economy could result in significant decreases in the Company's revenue and profitability andan inability to sustain or grow the business.
The Company's lift truck business historically has been cyclical. Fluctuations in the rate of orders for lift trucks, attachments and fuel-cell technology reflect thecapital investment decisions of the Company's customers, which depend to a certain extent on the general level of economic activity in the various industries thelift truck customers serve. During economic downturns, customers tend to delay new lift truck and parts purchases. Consequently, the Company has experienced,and in the future may continue to experience, significant fluctuations in revenues and net income. If there is a downturn in the general economy, or in the industriesserved by lift truck customers, the Company's revenue and profitability could decrease significantly, and the Company may not be able to sustain or grow thebusiness.
The cost of raw materials used by the Company's products has fluctuated and may continue to fluctuate, which could materially reduce the Company'sprofitability.
At times, the Company has experienced significant increases in materials costs, primarily as a result of global increases in industrial metals including steel, leadand copper and other commodity prices, such as rubber, as a result of increased demand and limited supply. The Company manufactures products that include rawmaterials that consist of steel, rubber, copper, lead, castings and counterweights. The Company also purchases parts provided by suppliers that are manufacturedfrom castings and steel or contain lead. The cost of these parts is affected by the same economic conditions that impact the cost of the parts the
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Company manufactures. The cost to manufacture lift trucks and related service parts has been and will continue to be affected by fluctuations in prices for theseraw materials. If costs of these raw materials increase, the Company's profitability could be materially reduced.
The pricing and costs of the Company's products have been and may continue to be impacted by currency fluctuations, which could materially increase costs,and result in material exchange losses and reduce operating margins.
Because the Company conducts transactions in various currencies, including euros, U.S. dollars, Japanese yen, British pounds, Swedish kroner, Mexican peso,Brazilian real and Chinese renminbi, lift truck pricing is subject to the effects of fluctuations in the value of these currencies and fluctuations in the related currencyexchange rates. As a result, the Company's sales have historically been affected by, and may continue to be affected by, these fluctuations. In addition, exchangerate movements between currencies in which the Company purchases materials and components and manufactures certain products and the currencies in which theCompany sells those products have been affected by and may continue to result in exchange losses that could materially reduce operating margins. Furthermore,the Company's hedging contracts may not fully offset risks from changes in currency exchange rates.
The Company is subject to risks relating to its non-U.S. operations.
Non-U.S. operations represent a significant portion of the Company's business. The Company expects revenue from non-U.S. markets to continue to represent asignificant portion of total revenue. The Company owns or leases manufacturing facilities in Brazil, Italy, Mexico, the Netherlands, Northern Ireland, Finland,Germany and China, and owns interests in joint ventures with facilities in Japan, the Philippines and Vietnam. The Company also sells U.S. produced products tonon-U.S. customers and sells non-U.S. produced products to U.S. customers. The Company's non-U.S. operations are subject to additional risks, which include: • potential political, economic and social instability in the non-U.S. countries in which the Company operates;• currency risks, including those risks set forth under, “The pricing and costs of the Company's products have been and may continue to be impacted by
currency fluctuations, which could materially increase costs and result in material exchange losses and reduce operating margins”;• imposition of or increases in currency exchange controls;• potential inflation in the applicable non-U.S. economies;• imposition of or increases in import duties and other tariffs on products;• imposition of or increases in non-U.S. taxation of earnings and withholding on payments received;• regulatory changes affecting non-U.S. operations; and• stringent labor regulations.
Part of the strategy to expand worldwide market share is strengthening the Company's non-U.S. distribution network. A part of this strategy also includesdecreasing costs by sourcing basic components in lower-cost countries. Implementation of this part of the strategy may increase the impact of the risks describedabove and there can be no assurance that such risks will not have an adverse effect on the Company's revenues, profitability or market share.
The Company operates in various taxing jurisdictions around the world in which the tax laws, regulations and administrative practices are often subject tointerpretation as well as to change. Although the Company has sought to reduce this uncertainty by obtaining rulings from the tax authorities in certain cases, theCompany's positions may still be subject to challenge. If the Company were to become subject to a challenge, the outcome could have a significant negative effecton the Company's operating results and financial condition.
Economic and political conditions in the United States and abroad may lead to significant changes in tax rules and regulations and/or lead to the adoption ofrestrictions on international trade. For example, recent measures to reform U.S. tax laws and proposals to reform non-U.S. tax laws or other regulations couldsignificantly impact how multinational corporations are taxed. Although the Company cannot predict the final form of any regulation, if adopted at all, suchregulations could, if enacted, have a material adverse impact on the Company's profitability.
The Company relies primarily on its network of independent dealers to sell lift trucks and aftermarket parts and the Company has no direct control over salesby those dealers to customers. Ineffective or poor performance by these independent dealers could result in a significant decrease in revenues and profitabilityand the inability to sustain or grow the business.
The Company relies primarily on independent dealers for sales of lift trucks and aftermarket parts. Sales of the Company's products are therefore subject to thequality and effectiveness of the dealers, who are not subject to the Company's direct control. As a result, ineffective or poorly performing dealers could result in asignificant decrease in revenues and profitability and the Company may not be able to sustain or grow its business.
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The Company depends on a limited number of suppliers for specific critical components.
The Company depends on a limited number of suppliers for some of its critical components, including diesel, gasoline and alternative fuel engines and cast-ironcounterweights used to counterbalance some lift trucks. Some of these critical components are imported and subject to regulation, primarily with respect tocustomary inspection of such products by the U.S. Customs and Border Protection under the auspices of the U.S. Department of Homeland Security. The results ofoperations could be adversely affected if the Company is unable to obtain these critical components, or if the costs of these critical components were to increasesignificantly, due to regulatory compliance or otherwise, and the Company was unable to pass the cost increases on to its customers.
The Company may not be successful in commercializing Nuvera’s technology, which success would depend, in part, on the Company’s ability to protectNuvera’s intellectual property.
The Company may not be able to commercialize Nuvera’s fuel-cell technologies on economically efficient terms. Unforeseen difficulties, such as delays indevelopment due to design defects or changes in specifications and insufficient research and development resources or cost overruns, may hinder the Company’sability to incorporate Nuvera’s technologies into its product lines on an economically favorable basis or at all.
Furthermore, Nuvera’s commercial success will depend largely on the Company’s ability to maintain patent and other intellectual property protection coveringcertain of Nuvera’s technologies. Nuvera’s fuel-cell technology may not be economically viable if the Company is unable to prevent others from infringing orsuccessfully challenging the validity of certain patents and other intellectual property rights attributable to Nuvera.
If the Company's strategic initiatives, including the introduction of new products, do not prove effective, revenues, profitability and market share could besignificantly reduced.
Changes in the timing of implementation of the Company's current strategic initiatives may result in a delay in the expected recognition of future costs andrealization of future benefits. In addition, if future industry demand levels are lower than expected, the actual annual cost savings could be lower than expected. Ifthe Company is unable to successfully implement these strategic initiatives, revenues, profitability and market share could be significantly reduced.
Failure to compete effectively within the Company's industry could result in a significant decrease in revenues and profitability.
The Company experiences intense competition in the sale of lift trucks and aftermarket parts. Competition in the lift truck industry is based primarily on strengthand quality of dealers, brand loyalty, customer service, new lift truck sales prices, availability of products and aftermarket parts, comprehensive product lineofferings, product performance, product quality and features and the cost of ownership over the life of the lift truck. The Company competes with several globalmanufacturers that operate in all major markets. These manufacturers may have lower manufacturing costs and greater financial resources than the Company,which may enable them to commit larger amounts of capital in response to changing market conditions. If the Company fails to compete effectively, revenues andprofitability could be significantly reduced.
If the global capital goods market declines, the cost saving efforts the Company has implemented may not be sufficient to achieve the benefits expected.
If the global economy or the capital goods market declines, revenues could decline. If revenues are lower than expected, the programs the Company hasimplemented may not achieve the benefits expected. Furthermore, the Company may be forced to take additional cost saving steps that could result in additionalcharges that materially adversely affect the ability to compete or implement the Company's current business strategies.
The Company is subject to recourse or repurchase obligations with respect to the financing arrangements of some of its customers.
Through arrangements with WF and others, dealers and other customers are provided financing for new lift trucks in the United States and in major countries of theworld outside of the United States. Through these arrangements, the Company's dealers and certain customers are extended credit for the purchase of lift trucks tobe placed in the dealer’s floor plan inventory or the financing of lift trucks that are sold or leased to customers. For some of these arrangements, the Companyprovides recourse or repurchase obligations such that it would become obligated in the event of default by the dealer or customer. Total amounts subject to thesetypes of obligations were $203.5 million and $149.3 million at December 31, 2017 and 2016 , respectively. Generally, the Company maintains a perfected securityinterest in the assets financed such that, in the event that the Company becomes obligated under the terms of the recourse or repurchase obligations, it may taketitle to the assets financed. The Company cannot be certain, however, that the security interest will equal or exceed the amount of the recourse or repurchase
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obligations. In addition, the Company cannot be certain that losses under the terms of the recourse or repurchase obligations will not exceed the reserves that havebeen set aside in the consolidated financial statements. The Company could incur a charge to earnings if reserves prove to be inadequate, which could have amaterial adverse effect on results of operations and liquidity for the period in which the charge is taken.
Actual liabilities relating to pending lawsuits may exceed the Company's expectations.
The Company is a defendant in pending lawsuits involving, among other things, product liability claims. The Company cannot be sure that it will succeed indefending these claims, that judgments will not be rendered against the Company with respect to any or all of these proceedings or that reserves set aside orinsurance policies will be adequate to cover any such judgments. The Company could incur a charge to earnings if reserves prove to be inadequate or the averagecost per claim or the number of claims exceed estimates, which could have a material adverse effect on results of operations and liquidity for the period in whichthe charge is taken and any judgment or settlement amount is paid.
Other products may be introduced to the market by competitors, making the Nuvera technology less marketable.
The use of fuel-cell technology in industrial and commercial applications is a relatively new development. Companies implementing such technology facecompetition from competitors that integrate more traditional energy technologies into their product lines, as well as competitors that have implemented or areimplementing alternatives to traditional energy technologies, such as lithium batteries, fuel additives and other high efficiency or “renewable” technologies. Any ofthese technologies may have more established or otherwise more attractive manufacturing, distribution and operating cost features, which could negatively impactcustomers’ preferences for product lines that incorporate fuel-cell technology and, as a result, diminish the marketability of products incorporating Nuveratechnology.
Actual liabilities relating to environmental matters may exceed the Company's expectations.
The Company's manufacturing operations are subject to laws and regulations relating to the protection of the environment, including those governing themanagement and disposal of hazardous substances. If the Company fails to comply with these laws or the Company's environmental permits, then the Companycould incur substantial costs, including cleanup costs, fines and civil and criminal sanctions. In addition, future changes to environmental laws could require theCompany to incur significant additional expenses or restrict operations.
The Company's products may also be subject to laws and regulations relating to the protection of the environment, including those governing vehicle exhausts.Regulatory agencies in the United States and Europe have issued or proposed various regulations and directives designed to reduce emissions from spark-ignitedengines and diesel engines used in off-road vehicles, such as industrial lift trucks. These regulations require the Company and other lift truck manufacturers toincur costs to modify designs and manufacturing processes and to perform additional testing and reporting.
The Company is investigating or remediating historical contamination at some current and former sites caused by its operations or those of businesses it acquired.While the Company is not currently aware that any material outstanding claims or obligations exist with regard to these sites, the discovery of additionalcontamination at these or other sites could result in significant cleanup costs that could have a material adverse effect on its financial condition and results ofoperations.
In connection with any acquisition the Company has made, it could, under some circumstances, be held financially liable for or suffer other adverse effects due toenvironmental violations or contamination caused by prior owners of businesses the Company acquired. In addition, under some of the agreements through whichthe Company has sold businesses or assets, it has retained responsibility for certain contingent environmental liabilities arising from pre-closing operations. Theseliabilities may not arise, if at all, until years later and could require the Company to incur significant additional expenses, which could materially adversely affectthe results of operations and financial condition.
The Company is subject to import and export controls, which could subject the Company to liability or impair the Company's ability to compete ininternational markets.
Due to the international scope of the Company's operations, the Company is subject to a complex system of import- and export-related laws and regulations,including U.S. export control and customs regulations and customs regulations of other countries. These regulations are complex and vary among the legaljurisdictions in which the Company operates. Obtaining the necessary authorizations, including any required license, for a particular transaction may be time-consuming, is not guaranteed, and may result in the delay or loss of sales opportunities. Furthermore, U.S. export control laws and economic sanctions lawsprohibit certain transactions with U.S. embargoed or sanctioned countries, governments, persons and entities. Any alleged or actual failure to comply with suchlaws and regulations may subject the Company to government scrutiny, investigation, and civil and criminal penalties, and may limit the Company's ability toimport or export products or to provide services outside the United States. Depending on severity, any of these penalties could have a material impact on theCompany's business, financial
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condition and results of operations. There can be no assurance that laws and regulations will not be changed in ways which will require the Company to modify itsbusiness models and objectives or affect the Company's returns on investments by restricting existing activities and products, subjecting them to escalating costs orprohibiting them outright.
The Company may become subject to claims under non-U.S. laws and regulations, which may require expensive, time consuming and distracting litigation.
Because the Company has employees, property and business operations outside of the United States, it is subject to the laws and the court systems of manyjurisdictions. The Company may become subject to claims outside the United States based in non-U.S. jurisdictions for violations of their laws with respect to theCompany's non-U.S. operations. In addition, these laws may be changed or new laws may be enacted in the future. Non-U.S. litigation is often expensive, timeconsuming and distracting. As a result, any of these risks could significantly reduce profitability and the Company's ability to operate its businesses effectively.
The Company may be subject to risks relating to increasing cash requirements of certain employee benefits plans which may affect its financial position.
The expenses recorded for, and cash contributions required to be made to, the Company's defined benefit pension plans are dependent on changes in market interestrates and the value of plan assets, which are dependent on actual investment returns. Significant changes in market interest rates, decreases in the value of planassets or investment losses on plan assets may require the Company to increase the cash contributed to defined benefit plans which may affect its financial position.
The Company is dependent on key personnel, and the loss of these key personnel could significantly reduce profitability.
The Company is highly dependent on the skills, experience and services of key personnel, and the loss of key personnel could have a material adverse effect on itsbusiness, operating results and financial condition. Employment and retention of qualified personnel is important to the successful conduct of the Company'sbusiness. Therefore, the Company's success also depends upon its ability to recruit, hire, train and retain additional skilled and experienced management personnel.The Company's inability to hire and retain personnel with the requisite skills could impair its ability to manage and operate its business effectively and couldsignificantly reduce profitability.
Certain members of the Company’s extended founding family own a substantial amount of its Class A and Class B common stock and, if they were to act inconcert, could control the outcome of director elections and other stockholder votes on significant corporate actions.
The Company has two classes of common stock: Class A common stock and Class B common stock. Holders of Class A common stock are entitled to cast onevote per share and, as of December 31, 2017, accounted for approximately 24 percent of the voting power of the Company. Holders of Class B common stock areentitled to cast ten votes per share and, as of December 31, 2017, accounted for the remaining voting power of the Company. As of December 31, 2017, certainmembers of the Company’s extended founding family held approximately 27 percent of the Company’s outstanding Class A common stock and approximately 85percent of the Company’s outstanding Class B common stock. On the basis of this common stock ownership, certain members of the Company’s extendedfounding family could have exercised 71 percent of the Company’s total voting power. Although there is no voting agreement among such extended familymembers, in writing or otherwise, if they were to act in concert, they could control the outcome of director elections and other stockholder votes on significantcorporate actions, such as certain amendments to the Company’s certificate of incorporation and sales of the Company or substantially all of its assets. Becausecertain members of the Company’s extended founding family could prevent other stockholders from exercising significant influence over significant corporateactions, the Company may be a less attractive takeover target, which could adversely affect the market price of its common stock.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
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Item 2. PROPERTIES
The following table presents the principal assembly, manufacturing, distribution and office facilities that the Company owns or leases:
Segment Facility Location Owned/Leased Function(s)Lift Truck
Americas Berea, Kentucky Owned Assembly of lift trucks and manufacture of component parts Charlotte, North Carolina Leased Customer experience and training center
Cleveland, Ohio Leased Global headquarters Danville, Illinois Owned Americas parts distribution center
Fairview, Oregon
Owned
Global executive administrative center; counterbalanced development centerfor design and testing of lift trucks, prototype equipment and component parts
Greenville,North Carolina
Owned
Divisional headquarters and marketing and sales operations for Hyster ® andYale ® in Americas; Americas warehouse development center; assembly oflift trucks and manufacture of component parts
Itu, Brazil Owned Assembly of lift trucks and parts distribution center
Ramos Arizpe,Mexico
Owned
Manufacture of component parts for lift trucks
Sulligent, Alabama Owned Manufacture of component parts for lift trucksEMEA
Craigavon,Northern Ireland
Owned
Manufacture of lift trucks and cylinders; frame and mast fabrication forEMEA
Frimley, Surrey, United Kingdom
Leased
Divisional headquarters and marketing and sales operations for Hyster ® andYale ® in EMEA
Irvine, Scotland Leased European administrative center Masate, Italy Leased Assembly of lift trucks; European warehouse development center
Nijmegen,The Netherlands
Owned
Big trucks development center; manufacture and assembly of big trucks andcomponent parts; European parts distribution center
JAPIC
Shanghai, China
Owned
Assembly of lift trucks by Shanghai Hyster joint venture, sale of parts andmarketing operations of China
Sydney, Australia
Leased
Divisional headquarters and sales and marketing for JAPIC; JAPIC partsdistribution center
Pune, India Leased Engineering design servicesBolzoni Helsinki, Finland Leased Manufacture and distribution of Bolzoni products
Heibei, China Owned Manufacture and distribution of Bolzoni products
Homewood, Illinois Owned Manufacture and distribution of Bolzoni products
Piacenza, Italy Owned Bolzoni headquarters; manufacture and distribution of Bolzoni products
Prato, Italy Owned Manufacture and distribution of Bolzoni products
Salzgitter, Germany Owned Manufacture and distribution of Bolzoni products
Wuxi, China Owned Manufacture and distribution of Bolzoni products
Nuvera Billerica, Massachusetts Leased Nuvera research and development laboratory
San Donato, Italy Leased Nuvera integration and testing
SN’s operations are supported by three facilities. SN’s headquarters are located in Obu, Japan at a facility owned by SN. The Obu facility also has assembly anddistribution capabilities for lift trucks and parts. In Cavite, the Philippines and Hanoi, Vietnam, SN owns facilities for the manufacture of components for SN andthe Company's products.
Item 3. LEGAL PROCEEDINGS
The Company is, and will likely continue to be, involved in a number of legal proceedings which the Company believes generally arise in the ordinary course ofthe business, given its size, history and the nature of its business and products. The Company is not a party to any material legal proceeding.
Item 4. MINE SAFETY DISCLOSURES
None.
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Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANTThe following tables set forth the name, age, current position and principal occupation and employment during the past five years of the Company’s executiveofficers.
Name Age Current Position Other PositionsAlfred M. Rankin, Jr.
76
Chairman, President and Chief Executive Officer of Hyster-Yale (from prior to 2013), Chairman of HYG (from prior to2013).
Colin Wilson
63
President and Chief Executive Officer, HYG of Hyster-Yale(from September 2014), President and Chief Executive Officerof HYG (from September 2014).
President and Chief Operating Officer of HYG (from November 2013 toSeptember 2014), President, Americas of HYG (from prior to 2013 toSeptember 2014), Vice President and Chief Operating Officer of HYG (fromprior to 2013 to November 2013).
Gregory J. Breier
52 Vice President, Tax of Hyster-Yale (from May 2014), VicePresident, Tax of HYG (from prior to 2013).
Brian K. Frentzko
57 Vice President, Treasurer of Hyster-Yale (from prior to 2013),Vice President, Treasurer of HYG (from prior to 2013).
Amy E. Gerbick
46
Associate General Counsel, Director of Corporate Complianceand Assistant Secretary of Hyster-Yale (from May 2014),Associate General Counsel, Director of Corporate Complianceand Assistant Secretary of HYG (from May 2014).
Associate, Jones Day (a law firm) (from prior to 2013 to May 2014).
Jennifer M. Langer
44
Vice President, Controller of Hyster-Yale (from February2013), Vice President, Controller of HYG (from February2013).
Controller of Hyster-Yale (from prior to 2013 to February 2013), Controllerof HYG (from prior to 2013 to February 2013).
Lauren E. Miller
63
Senior Vice President, Chief Marketing Officer of Hyster-Yale (from January 2015), Senior Vice President, ChiefMarketing Officer of HYG (from January 2015).
Senior Vice President, Marketing and Consulting of Hyster-Yale (from priorto 2013 to January 2015), Senior Vice President, Marketing and Consulting ofHYG (from prior to 2013 to January 2015).
Charles F. Pascarelli
58
Senior Vice President, President, Americas of HYG (fromJanuary 2015)
President, Sales and Marketing, Americas of HYG (from March 2013 toJanuary 2015), President, Sales and Marketing, The Raymond Corporation(an electrical materials handling company) (from prior to 2013 to March2013).
Rajiv K. Prasad
54
Chief Product and Operations Officer of HYG (from February2018).
Senior Vice President, Global Product Development, Manufacturing andSupply Chain Strategy of HYG (from September 2014 to February 2018).Vice President, Global Product Development and Manufacturing of HYG(from prior to 2013 to September 2014).
Anthony J. Salgado
47
Senior Vice President, JAPIC of HYG (from January 2016).
Vice President, Corporate Officer, UniCarriers Corporation (an industrialcompany) (from April 2014 to January 2016), President, UniCarriersAmericas Corporation (from October 2013 to January 2016), Vice President,Manufacturing Operations, UniCarriers Americas Corporation (from prior to2013 to October 2013).
Harry Sands
66 Senior Vice President, Managing Director, Europe, MiddleEast and Africa of HYG (from June 2015).
Vice President, Manufacturing EMEA of HYG (from prior to 2013 to June2015).
Kenneth C. Schilling
58
Senior Vice President and Chief Financial Officer of Hyster-Yale (from September 2014), Senior Vice President and ChiefFinancial Officer of HYG (from September 2014).
Vice President and Chief Financial Officer of Hyster-Yale (from prior to 2013to September 2014), Vice President and Chief Financial Officer of HYG(from prior to 2013 to September 2014).
Gopichand Somayajula
61 Vice President, Global Product Development of HYG (fromMay 2013)
Vice President, Counterbalanced Engineering of HYG (from prior to 2013 toMay 2013).
Suzanne S. Taylor
55
Senior Vice President, General Counsel and Secretary ofHyster-Yale (from May 2016), Senior Vice President, GeneralCounsel and Secretary of HYG (from May 2016).
Vice President, Deputy General Counsel and Assistant Secretary of Hyster-Yale (from February 2013 to May 2016), Vice President, Deputy GeneralCounsel and Assistant Secretary of HYG (from February 2013 to May 2016),Deputy General Counsel and Assistant Secretary of Hyster-Yale (from priorto 2013 to February 2013), Deputy General Counsel and Assistant Secretaryof HYG (from prior to 2013 to February 2013).
Mark H. Trivett
48 Vice President Finance, Europe, Middle East and Africa ofHYG (from prior to 2013).
Raymond C. Ulmer
54 Vice President Finance, Americas of HYG (from prior to2013).
The information under this Item is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.There exists no arrangement or understanding between anyexecutive officer and any other person pursuant to which such executive officer was elected. Each executive officer serves until his or her successor is elected andqualified.
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PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES
The Company's Class A common stock is traded on the New York Stock Exchange under the ticker symbol “HY.” For the Company's Class B common stock, dueto transfer restrictions, no trading market has developed, or is expected to develop. The Class B common stock is convertible into Class A common stock on a one-for-one basis. The high and low market prices for the Class A common stock and dividends per share for both classes of common stock for each quarter arepresented in the tables below:
2017
Market Price
High Low Cash Dividend
First quarter $ 69.00 $ 54.07 $ 0.2950Second quarter $ 76.50 $ 53.50 $ 0.3025Third quarter $ 77.07 $ 62.62 $ 0.3025Fourth quarter $ 93.90 $ 76.10 $ 0.3025
2016
Market Price High Low Cash Dividend
First quarter $ 68.21 $ 44.41 $ 0.2850Second quarter $ 70.19 $ 55.80 $ 0.2950Third quarter $ 66.43 $ 47.25 $ 0.2950Fourth quarter $ 68.75 $ 49.84 $ 0.2950
At December 31, 2017 , there were approximately 846 Class A common stockholders of record and approximately 891 Class B common stockholders of record.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Issuer Purchases of Equity Securities
Period
(a)Total Number of Shares
Purchased
(b)Average Price Paid per
Share
(c)Total Number of SharesPurchased as Part of the
Publicly Announced Program
(d)Maximum Number of Shares (or Approximate
Dollar Value) that May Yet Be Purchased Underthe Program
Month #1(October 1 to 31, 2017) — $— — $0Month #2(November 1 to 30, 2017) — $— — $0Month #3(December 1 to 31, 2017) — $— — $0 Total — $— — $0
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Item 6. SELECTED FINANCIAL DATA
Year Ended December 31
2017 (1) 2016 2015 2014 2013 (In millions, except per share data)Operating Statement Data: Revenues $ 2,885.2 $ 2,569.7 $ 2,578.1 $ 2,767.2 $ 2,666.3Operating profit $ 76.0 $ 34.9 $ 103.5 $ 148.8 $ 134.3Net income $ 48.9 $ 42.3 $ 75.1 $ 110.2 $ 110.2Net (income) loss attributable to noncontrolling interest (0.3) 0.5 (0.4) (0.4) (0.2)
Net income attributable to stockholders $ 48.6 $ 42.8 $ 74.7 $ 109.8 $ 110.0
Basic earnings per share attributable to stockholders: $ 2.95 $ 2.61 $ 4.58 $ 6.61 $ 6.58
Diluted earnings per share attributable to stockholders: $ 2.94 $ 2.61 $ 4.57 $ 6.58 $ 6.54
Balance Sheet Data at December 31: Total assets $ 1,647.9 $ 1,287.1 $ 1,095.9 $ 1,120.8 $ 1,161.3Long-term debt $ 216.2 $ 82.2 $ 19.6 $ 12.0 $ 6.7Stockholders' equity $ 565.5 $ 463.8 $ 460.8 $ 454.5 $ 449.8Cash Flow Data: Provided by (used for) operating activities $ 164.7 $ (48.9) $ 89.4 $ 100.0 $ 152.9Used for investing activities $ (47.3) $ (145.1) $ (31.3) $ (44.4) $ (26.1)Provided by (used for) financing activities $ 53.1 $ 77.9 $ (7.1) $ (110.5) $ (104.4)Other Data: Per share data: Cash dividends $ 1.2025 $ 1.1700 $ 1.1300 $ 1.0750 $ 1.0000Market value at December 31 $ 85.16 $ 63.77 $ 52.45 $ 73.20 $ 93.16Stockholders' equity at December 31 $ 34.35 $ 28.30 $ 28.23 $ 27.98 $ 26.91Actual shares outstanding at December 31 16.462 16.391 16.324 16.241 16.714Basic weighted average shares outstanding 16.447 16.376 16.307 16.607 16.725Diluted weighted average shares outstanding 16.514 16.427 16.355 16.675 16.808Total employees at December 31 (2) 6,800 6,500 5,400 5,400 5,100
(1) During 2017, the Company recognized $19.8 million of equity income from HYGFS and $38.2 million of income tax expense as a result of the Tax Cutsand Jobs Act (the “Tax Reform Act”), which was signed into law on December 22, 2017. Further information on the impacts of the Tax Reform Act isdiscussed in Note 6 to the consolidated financial statements.
(2) Excludes temporary employees.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShare,PercentageDataandasOtherwiseNoted)
OVERVIEWHyster-Yale Materials Handling, Inc. ("Hyster-Yale" or the "Company") and its subsidiaries, including its operating company Hyster-Yale Group, Inc. ("HYG"), isa leading, globally integrated, full-line lift truck manufacturer. The Company offers a broad array of solutions aimed at meeting the specific materials handlingneeds of its customers, including attachments and hydrogen fuel cell power products, telematics, automation and fleet management services, as well as an array ofother 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 ® retaildealerships. The materials handling business historically has been cyclical because the rate of orders for lift trucks fluctuates depending on the general level ofeconomic activity in the various industries its customers serve.
The Company also operates Bolzoni S.p.A. ("Bolzoni"). Bolzoni is a leading worldwide producer of attachments, forks and lift tables marketed under the BolzoniAuramo ® and Meyer ® brand names. Through the design, production and distribution of a wide range of attachments, Bolzoni has a strong presence in the marketniche 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.
Competition in the materials handling industry is intense and is based primarily on strength and quality of distribution, brand loyalty, customer service, new lifttruck sales prices, availability of products and aftermarket parts, comprehensive product line offerings, product performance, product quality and features and thecost of ownership over the life of the lift truck. The Company competes with several global lift truck manufacturers that operate in all major markets, as well asother niche companies. The lift truck industry also competes with alternative methods of materials handling, including conveyor systems and automated guidedvehicle systems. The Company's aftermarket parts offerings compete with parts manufactured by other lift truck manufacturers, as well as companies that focussolely on the sale of generic parts.
The Company's mission is to be a leading, globally integrated designer, manufacturer and marketer of a complete range of lift-truck solutions by leveraging itshigh-quality, application-tailored lift trucks, attachments and power solutions to offer the lowest cost of ownership and the best overall value. The Company’s corecompetency is lift truck manufacturing, but its goal is to become the lift truck solutions partner to the materials handling market, one customer and one industry ata time.
The Company’s objective is to provide a wide-range of solutions to its customers to generate profitable growth through increasing volumes, which in turn areexpected to generate market share gains and drive improved margins. The Company plans to accomplish these objectives by implementing its core strategicinitiatives to: be the leader in the delivery of industry- and customer-focused solutions; provide the lowest cost of ownership, while enhancing productivity forcustomers; be the leader in independent distribution; grow in emerging markets; be the leader in the attachments business and be a leader in fuel cells and theirapplications.
Critical Accounting Policies and EstimatesThe discussion and analysis of financial condition and results of operations are based upon the Company's consolidated financial statements, which have beenprepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the use of estimates andjudgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities, if any. On anongoing basis, the Company evaluates its estimates based on historical experience, actuarial valuations and various other assumptions that are believed to bereasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readilyapparent from other sources. Actual results may differ from those estimates.
The Company believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the consolidatedfinancial statements.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShare,PercentageDataandasOtherwiseNoted)
Revenuerecognition: Revenues are recognized based upon the terms of contracts with customers, which is generally when title transfers and risk of loss passes ascustomer orders are completed and shipped. For the Company's National Account customers, revenue is recognized upon customer acceptance. National Accountcustomers are large customers with centralized purchasing and geographically dispersed operations in multiple dealer territories. Reserves for discounts and returnsare maintained for anticipated future claims. The accounting policies used to develop these product discounts and returns include:
Productdiscounts: The Company records estimated reductions to revenues for customer programs and incentive offerings, including special pricingagreements, price competition, promotions and other volume-based incentives. Lift truck sales revenue is recorded net of estimated discounts. The estimateddiscount amount is based upon historical trends for each lift truck model. In addition to standard discounts, dealers can also request additional discounts thatallow them to offer price concessions to customers. From time to time, the Company offers special incentives to increase market share or dealer stock andoffers certain customers volume rebates if a specified cumulative level of purchases is obtained. If estimates of customer programs and incentives were onepercent higher than the levels offered during 2017, the reserves for product discounts would increase and revenue would be reduced by $4.7 million. TheCompany's past results of operations have not been materially affected by a change in the estimate of product discounts and although there can be noassurances, the Company is not aware of any circumstances that would be reasonably likely to materially change its estimates in the future.
Productreturns: Products generally are not sold with the right of return with the exception of a small percentage of aftermarket parts. Based on historicalexperience, a portion of these aftermarket parts are estimated to be returned which, subject to certain terms and conditions, the Company will agree to accept.The Company records estimated reductions to revenues at the time of sale based on this historical experience and the limited right of return provided to certaincustomers. If future trends were to change significantly from those experienced in the past, incremental reductions to revenues may result based on this newexperience. If the estimate of average return rates for these aftermarket parts were to increase by one percent over historical levels, the reserves for productreturns would increase and revenues would be reduced by $0.2 million. The Company's past results of operations have not been materially affected by achange in the estimate of product returns and although there can be no assurances, the Company is not aware of any circumstances that would be reasonablylikely to materially change its estimates in the future.
Productwarranties: The Company provides for the estimated cost of product warranties at the time revenues are recognized. While the Company engages inextensive product quality programs and processes, including actively monitoring and evaluating the quality of component suppliers, the warranty obligation isaffected by product failure rates, labor costs and replacement component costs incurred in correcting a product failure. If actual product failure rates, labor costs orreplacement component costs differ from the Company's estimates, which are based on historical failure rates and consideration of known trends, revisions to theestimate of the cost to correct product failures would be required. If the estimate of the cost to correct product failures were to increase by one percent over 2017levels, the reserves for product warranties would increase and additional expense of $0.2 million would be incurred. The Company's past results of operations havenot been materially affected by a change in the estimate of product warranties and although there can be no assurances, the Company is not aware of anycircumstances that would be reasonably likely to materially change the estimates in the future.
Retirementbenefitplans: The Company maintains various defined benefit pension plans that provide benefits based on years of service and average compensationduring certain periods. Pension benefits are frozen for all employees other than certain employees in the Netherlands. All other eligible employees, includingemployees whose pension benefits are frozen, receive retirement benefits under defined contribution retirement plans. The Company's policy is to periodicallymake contributions to fund the defined benefit pension plans within the range allowed by applicable regulations. The defined benefit pension plan assets consistprimarily of publicly traded stocks and government and corporate bonds. There is no guarantee the actual return on the plans’ assets will equal the expected long-term rate of return on plan assets or that the plans will not incur investment losses.
The expected long-term rate of return on defined benefit plan assets reflects management’s expectations of long-term rates of return on funds invested to providefor benefits included in the projected benefit obligations. In establishing the expected long-term rate of return assumption for plan assets, the Company considersthe historical rates of return over a period of time that is consistent with the long-term nature of the underlying obligations of these plans as well as a forward-looking rate of return. The historical and forward-looking rates of return for each of the asset classes used to determine the Company's estimated rate
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShare,PercentageDataandasOtherwiseNoted)
of return assumption were based upon the rates of return earned or expected to be earned by investments in the equivalent benchmark market indices for each ofthe asset classes.
Expected returns for most of the Company's pension plans are based on a calculated market-related value of assets. Under this methodology, asset gains and lossesresulting from actual returns that differ from expected returns are recognized in the market-related value of assets ratably over three years.
The basis for the selection of the discount rate for each plan is determined by matching the timing of the payment of the expected obligations under the definedbenefit plans against the corresponding yield of high-quality corporate bonds of equivalent maturities.
The following illustrates the sensitivity of the net periodic benefit cost and projected benefit obligation to a 1% change in the discount rate or return on plan assets(in millions):
Assumption Change Increase (decrease)
2018 net pension expense Increase (decrease)
2017 projected benefit obligation
Discount rate 1% increase $0.1 $(6.1) 1% decrease (0.3) 6.7Return on plan assets 1% increase (1.0) N/A 1% decrease 1.0 N/ASee Note 9 to the consolidated financial statements in this Annual Report on Form 10-K for further discussion of the retirement benefit plans.
Long-livedassets,goodwillandintangibleassets:Net property, plant and equipment, goodwill and net intangible assets at December 31, 2017 were $265.4million, $59.1 million and $56.1 million, respectively. The Company makes estimates and assumptions in preparing the consolidated financial statements for whichactual results will emerge over long periods of time. This includes the recoverability of long-lived assets employed in the business, including assets of acquiredbusinesses. These estimates and assumptions are closely monitored and periodically adjusted as circumstances warrant. For instance, expected asset lives may beshortened or an impairment recorded based on a change in the expected use of the asset or performance of the related asset group.
The Company periodically evaluates long-lived assets, including intangible assets with finite lives, for impairment when changes in circumstances or theoccurrence of certain events indicate the carrying amount of an asset may not be recoverable. Upon identification of indicators of impairment, assets and liabilitiesare grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets or liabilities. The asset group would beconsidered impaired when the estimated future undiscounted cash flows generated by the asset group are less than carrying value. If the carrying value of an assetgroup is considered impaired, an impairment charge is recorded for the amount that the carrying value of the asset group exceeds its fair value. Fair value isestimated as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurementdate. The determination of asset groups and the underlying cash flows requires the use of significant judgment.
The Company has intangible assets, including customer and contractual relationships, patents and technology, and trademarks. Intangible assets with a definite lifeare amortized over a period ranging from one to thirteen years on a systematic and rational basis (generally straight line) that is representative of the asset’s use.Costs related to internally developed intangible assets, such as patents, are expensed as incurred and included in selling, general and administrative expenses.
During the fourth quarter of 2017, in connection with the preparation of the Company's annual operating plan for 2018 and longer-term forecast, the Companyidentified indicators of impairment at Nuvera due to the extension of time expected to commercialize Nuvera's products and the related length of time needed toachieve break-even operating results and positive cash flows. Accordingly, the Company performed an impairment analysis during the fourth quarter of 2017 ofNuvera's long-lived assets, including property, plant and equipment and intangible assets with finite lives. Based on this analysis, it was determined that the fairvalue of these assets was less than the respective carrying amounts of such assets, and accordingly, the Company recognized an impairment charge of $4.9 millionin the Nuvera segment, which is included in selling, general and administrative expenses in the consolidated statement of operations. The impairment chargereduced property, plant, and
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equipment by $3.7 million and intangible assets by $1.2 million. See Note 11 and Note 12 to the consolidated financial statements in this Annual Report on Form10-K for further discussion of the impairment charge.
Intangible assets with an indefinite life, including certain trademarks, are not amortized. Indefinite-lived intangible assets are tested for impairment annually, andare tested for impairment between annual tests if an event occurs or circumstances change that would indicate that the carrying amount may be impaired. Animpairment loss generally would be recognized when the fair value is less than the carrying value of the indefinite-lived intangible asset.
Of the $56.1 million of net intangible assets, $18.0 million relates to indefinite-lived trademarks, related to the acquisition of Bolzoni. The primary valuationtechnique used in estimating the fair value of indefinite-lived intangible assets is the present value of discounted cash flows. Specifically, a relief of royalty rate isapplied to estimated sales, with the resulting amounts discounted using an appropriate discount rate of a market participant. The relief of royalty rate is theestimated royalty rate a market participant would pay to acquire the right to market and produce the product. If the resulting discounted cash flows are less thanbook value of the indefinite-lived intangible asset, an impairment exists and the asset would be adjusted to fair value. Based on impairment testing as of May 1,2017, no impairment was identified.
Goodwill is tested for impairment annually as of May 1 and is tested for impairment between annual tests if an event occurs or circumstances change that wouldindicate the carrying amount may be impaired. The Company completed the annual testing of impairment of goodwill as of May 1, 2017 at the reporting unit levelfor the related goodwill. The Company uses either a qualitative or quantitative analysis to determine whether fair value exceeds carrying value. An estimate of thefair value of the reporting unit is determined through a combination of comparable market values for similar businesses and discounted cash flows. These estimatescan change significantly based on such factors as the reporting unit's financial performance, economic conditions, interest rates, growth rates, pricing, changes inbusiness strategies and competition. Based on this testing, the fair value of each reporting unit was in excess of its carrying value and no impairment exists.
Factors which could result in future impairment charges include, but are not limited to, changes in worldwide economic conditions, changes in competitiveconditions and customer preferences. These risk factors are discussed in Item 1A, "Risk Factors," of this Form 10-K. In addition, changes in the weighted averagecost of capital could also impact impairment testing results. The Company will continue to monitor its reporting units and asset groups for any indicators ofimpairment.
Productliabilities: The Company provides for the estimated cost of personal and property damage relating to its products based on a review of historicalexperience and consideration of any known trends. Reserves are recorded for estimates of the costs for known claims and estimates of the costs of incidents thathave occurred but for which a claim has not yet been reported, up to the stop-loss insurance coverage. While the Company engages in extensive product qualityreviews and customer education programs, the product liability provision is affected by the number and magnitude of claims of alleged product-related injury andproperty damage and the cost to defend those claims. In addition, the estimates regarding the magnitude of claims are affected by changes in assumptions regardingmedical costs, inflation rates and trends in damages awarded by juries. Changes in the assumptions regarding any one of these factors could result in a change inthe estimate of the magnitude of claims. A one percent increase in the estimate of the number of claims or the magnitude of claims would increase the productliability reserve and reduce operating profit by approximately $0.2 million to $0.4 million. Although there can be no assurances, the Company is not aware of anycircumstances that would be reasonably likely to materially change the estimates in the future.
Self-insuranceliabilities: The Company is generally self-insured for product liability, environmental liability and medical and workers’ compensation claims. Forproduct liability, catastrophic insurance coverage is retained for potentially significant individual claims. An estimated provision for claims reported and for claimsincurred but not yet reported under the self-insurance programs is recorded and revised periodically based on industry trends, historical experience andmanagement judgment. In addition, industry trends are considered within management’s judgment for valuing claims. Changes in assumptions for such matters aslegal judgments and settlements, legal defense costs, inflation rates, medical costs and actual experience could cause estimates to change in the near term. Changesin any of these factors could materially change the estimates for these self-insurance obligations causing a related increase or decrease in reported net operatingresults in the period of change in the estimate.
Deferredtaxvaluationallowances: The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to berealized. A valuation allowance has been provided against certain deferred tax assets related
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to non-U.S. and U.S. state jurisdictions including net operating and capital loss carryforwards. Management believes the valuation allowances are adequate afterconsidering future taxable income, allowable carryback and carryforward periods, reversing taxable temporary differences and ongoing prudent and feasible taxplanning strategies. In the event the Company was to determine that it would be able to realize the deferred tax assets in the future in excess of the net recordedamount (including the valuation allowance), an adjustment to the valuation allowance would increase income in the period such determination was made.Conversely, should the Company determine that it would not be able to realize all or part of the net deferred tax asset in the future, an adjustment to the valuationallowance would be expensed in the period such determination was made. See "Financial Review - Income Taxes" and Note 6 to the Consolidated FinancialStatements in this Annual Report on Form 10-K for further discussion of the Company's income taxes.
Inventoryreserves: The Company writes down inventory to the lower of cost or net realizable value, which includes an estimate for obsolescence or excessinventory based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management,additional inventory write-downs may be required. Upon a subsequent sale or disposal of the impaired inventory, the corresponding reserve for impaired value isrelieved to ensure that the cost basis of the inventory reflects any write-downs. An impairment in value of one percent of net inventories would result in additionalexpense of approximately $4.1 million.
Allowancesfordoubtfulaccounts: The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to makerequired payments. These allowances are based on both recent trends of certain customers estimated to be a greater credit risk as well as general trends of the entirecustomer pool. If the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances maybe required. An impairment in value of one percent of net accounts receivable would require an increase in the allowance for doubtful accounts and would result inadditional expense of approximately $4.6 million.
CONSOLIDATED FINANCIAL REVIEW
The following table identifies the components of change for 2017 compared with 2016 by segment:
Revenues Gross Profit Operating Profit Net Income Attributable to
Stockholders
2016 $ 2,569.7 $ 427.5 $ 34.9 $ 42.8Increase (decrease) in 2017 Americas 158.4 46.7 35.6 8.8EMEA 100.1 6.2 1.4 (4.1)JAPIC 4.4 3.1 0.6 0.2Lift truck business 262.9 56.0 37.6 4.9
Bolzoni 61.6 19.1 6.5 4.2Nuvera 1.2 0.6 (2.4) (2.9)Eliminations (10.2) (0.6) (0.6) (0.4)
2017 $ 2,885.2 $ 502.6 $ 76.0 $ 48.6
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FINANCIAL REVIEW
The segment and geographic results of operations for the Company were as follows for the year ended December 31 :
Favorable / (Unfavorable) % Change 2017 2016 2015 2017 vs. 2016 2016 vs. 2015
Lift truck unit shipments (in thousands) Americas 58.4 54.4 56.8 7.4 % (4.2)%EMEA 28.9 24.6 23.8 17.5 % 3.4 %JAPIC 6.1 5.8 6.3 5.2 % (7.9)%
93.4 84.8 86.9 10.1 % (2.4)%Revenues
Americas $ 1,834.1 $ 1,675.7 $ 1,775.5 9.5 % (5.6)%EMEA 715.8 615.7 606.4 16.3 % 1.5 %JAPIC 173.9 169.5 193.7 2.6 % (12.5)%Lift truck business 2,723.8 2,460.9 2,575.6 10.7 % (4.5)%
Bolzoni (1) 177.2 115.6 — 53.3 % n.m.Nuvera 3.7 2.5 2.5 48.0 % n.m.Eliminations (19.5) (9.3) — n.m. n.m.
$ 2,885.2 $ 2,569.7 $ 2,578.1 12.3 % (0.3)%Gross profit (loss)
Americas $ 334.6 $ 287.9 $ 308.1 16.2 % (6.6)%EMEA 95.7 89.5 101.3 6.9 % (11.6)%JAPIC 20.2 17.1 23.2 18.1 % (26.3)%Lift truck business 450.5 394.5 432.6 14.2 % (8.8)%
Bolzoni (1) 54.8 35.7 — 53.5 % n.m.Nuvera (2.1) (2.7) (1.8) (22.2)% n.m.Eliminations (0.6) — — n.m. n.m.
$ 502.6 $ 427.5 $ 430.8 17.6 % (0.8)%Selling, general and administrative expenses
Americas $ 225.3 $ 214.2 $ 191.2 (5.2)% (12.0)%EMEA 86.7 81.9 88.3 (5.9)% 7.2 %JAPIC 26.3 23.8 25.0 (10.5)% 4.8 %Lift truck business 338.3 319.9 304.5 (5.8)% (5.1)%
Bolzoni (1) 48.4 35.8 — (35.2)% n.m.Nuvera 39.9 36.9 22.8 (8.1)% n.m.
$ 426.6 $ 392.6 $ 327.3 (8.7)% (20.0)%
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Favorable / (Unfavorable) % Change 2017 2016 2015 2017 vs. 2016 2016 vs. 2015
Operating profit (loss) Americas $ 109.3 $ 73.7 $ 116.9 48.3 % (37.0)%EMEA 9.0 7.6 13.0 18.4 % (41.5)%JAPIC (6.1) (6.7) (1.8) 9.0 % n.m.Lift truck business 112.2 74.6 128.1 50.4 % (41.8)%
Bolzoni (1) 6.4 (0.1) — n.m. n.m.Nuvera (42.0) (39.6) (24.6) (6.1)% n.m.Eliminations (0.6) — — n.m. n.m.
$ 76.0 $ 34.9 $ 103.5 117.8 % (66.3)%
Interest expense $ 14.6 $ 6.7 $ 4.7 (117.9)% (42.6)%Other income $ (32.4) $ (10.1) $ (5.7) 220.8 % 77.2 %Income before income taxes $ 93.8 $ 38.3 $ 104.5 144.9 % (63.3)%Net income (loss) attributable to stockholders
Americas $ 68.4 $ 59.6 $ 76.3 14.8 % (21.9)%EMEA 5.3 9.4 10.6 (43.6)% (11.3)%JAPIC (1.9) (2.1) 2.4 9.5 % (187.5)%Lift truck business 71.8 66.9 89.3 7.3 % (25.1)%
Bolzoni (1) 3.9 (0.3) — n.m. n.m.Nuvera (26.7) (23.8) (14.6) (12.2)% n.m.Eliminations (0.4) — — n.m. n.m.
$ 48.6 $ 42.8 $ 74.7 13.6 % (42.7)%Diluted earnings per share $ 2.94 $ 2.61 $ 4.57 12.6 % (42.9)%Reported income tax rate 47.9% n.m. 28.1% (1) Bolzoni was acquired on April 1, 2016 and results of operations have been included since the acquisition date.n.m. - not meaningful
Following is the detail of the Company's unit shipments, bookings and backlog of unfilled orders placed with its manufacturing and assembly operations for newlift trucks, reflected in thousands of units. As of December 31, 2017 , substantially all of the Company's backlog is expected to be sold within the next twelvemonths.
YEAR ENDED NINE MONTHS ENDED YEAR ENDED December 31, 2017 September 30, 2017 December 31, 2016
Unit backlog, beginning of period 30.7 30.7 26.9Unit shipments (93.4) (67.5) (84.8)Unit bookings 96.5 71.9 88.6
Unit backlog, end of period 33.8 35.1 30.7
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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 ofbookings and backlog is calculated using the current unit bookings and backlog and the forecasted average sales price per unit.
YEAR ENDED NINE MONTHS ENDED YEAR ENDED December 31, 2017 September 30, 2017 December 31, 2016
Bookings, approximate sales value $ 2,260 $ 1,645 $ 2,000Backlog, approximate sales value $ 860 $ 860 $ 740
2017 Compared with 2016
The following table identifies the components of change in revenues for 2017 compared with 2016 :
Revenues
2016 $ 2,569.7Increase (decrease) in 2017 from: Unit volume and product mix 206.5Bolzoni revenues First quarter 2017 $ 41.6 Increase in comparable periods 20.0 61.6
Parts 25.7Unit price 23.1Foreign currency 12.4Nuvera revenues 1.2Other (15.0)
2017 $ 2,885.2
Revenues increased 12.3% to $2,885.2 million in 2017 from $2,569.7 million in 2016. The increase was mainly attributable to higher unit and parts volumes and adecrease in deal-specific pricing in the lift truck business in 2017 compared with 2016.
Revenues in the Americas increased in 2017 from 2016 primarily as a result of increased unit shipments of higher-priced trucks. Revenues increased primarilyfrom sales of the Company's new Class 5 internal combustion engine standard truck and increased sales of higher-capacity, 3.5 to 8 ton, Class 5 trucks, as well asClass 1 and Class 2 electric trucks. In addition, a decrease in deal-specific pricing and an increase in parts sales also contributed to the increase in revenues in 2017compared with 2016.
EMEA's revenues improved in 2017 from 2016 mainly as a result of increased unit shipments primarily related to shipments of the new Class 5 internalcombustion engine standard truck and an increase in shipments of Class 1 electric-rider trucks.
The following table identifies the components of change in operating profit for 2017 compared with 2016 :
Operating Profit
2016 $ 34.9Increase (decrease) in 2017 from: Lift truck gross profit 55.4Bolzoni operations 6.5Nuvera operations (2.4)Lift truck selling, general and administrative expenses (18.4)
2017 $ 76.0
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The Company recognized operating profit of $76.0 million in 2017 compared with $34.9 million in 2016. The increase in operating profit was primarily due tohigher lift truck gross profit, partially offset by an increase in selling, general and administrative expenses. The increase in the lift truck gross profit was primarilydue to higher unit shipments and related production efficiencies as well as improved pricing, net of material cost inflation.
Operating profit in the Americas increased in 2017 compared with 2016 primarily as a result of improved gross profit mainly due to higher unit shipments ofhigher-priced lift trucks and related production efficiencies, as well as improved pricing, net of material cost inflation. In addition, selling, general andadministrative expenses in the Americas increased in 2017 compared with the 2016 primarily due to higher employee-related costs and increased costs fordevelopment and marketing of new products, partially offset by lower acquisition-related costs.
Operating profit in EMEA increased in 2017 compared with 2016 as a result of improved gross profit partially offset by higher selling, general and administrativeexpenses mainly from higher marketing and employee-related costs. Gross profit improved primarily from higher unit shipments and the favorable impact offoreign currency movements of $4.4 million. The improvement was partially offset by material cost inflation.
Bolzoni's operating profit improved in 2017 from 2016 primarily due to the absence of $2.7 million of one-time purchase accounting adjustments recorded in 2016and higher gross profit from higher sales in the comparable second, third and fourth quarters of 2017 compared with 2016. Operating profit in the first quarter of2017 was $2.3 million.
During 2017, Nuvera's operating loss increased $2.4 million compared with 2016, mainly due to an impairment charge of $4.9 million recorded in 2017 onNuvera's long-lived assets. Increased employee-related costs, professional fees and other general operating expenses also contributed to the increase in operatingloss. These items were partially offset by lower product development and production start-up expenses. See Note 11 and Note 12 to the consolidated financialstatements in this Annual Report on Form 10-K for further discussion of the impairment charge.
The Company recognized net income attributable to stockholders of $48.6 million in 2017 compared with $42.8 million in 2016. The increase was primarily theresult of the increase in lift truck operating profit and $19.8 million of favorable HYGFS equity income in 2017 related to the Tax Cuts and Jobs Act (the “TaxReform Act”), which is reflected in “Income from Unconsolidated Affiliates” in the Consolidated Statement of Operations. These items were partially offset byincome tax expense of $38.2 million in 2017 due to the Tax Reform Act. See "Financial Review - Income Taxes" and Note 6 to the consolidated financialstatements in this Annual Report on Form 10-K for further discussion of income taxes.
2016 Compared with 2015
The following table identifies the components of change in revenues for 2016 compared with 2015 :
Revenues
2015 $ 2,578.1Increase (decrease) in 2016 from: Unit volume and product mix (84.1)Unit price (27.3)Foreign currency (20.1)Bolzoni revenues 115.6Other 5.6Parts 1.9
2016 $ 2,569.7
Revenues decreased slightly to $2,569.7 million in 2016 from $2,578.1 million in 2015. The decrease in the lift truck business was mainly due to lower unitvolumes, the unfavorable effect of deal-specific selling prices and a shift in sales to lower-priced lift trucks during 2016 compared with 2015. Revenues at non-U.S. locations were also unfavorably affected by the strong U.S.
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dollar during 2016 compared with 2015. The decline in lift truck revenue was partially offset by Bolzoni revenues since the acquisition on April 1, 2016.
Revenues in the Americas declined in 2016 from 2015 primarily as a result of the reduction in unit shipments and the unfavorable effect of deal-specific pricing inNorth America. In addition, unfavorable currency movements of $4.4 million from the translation of Brazilian sales into U.S. dollars, which strengthened againstthe Brazilian real, contributed to the decline in revenues.
EMEA's revenues increased in 2016 from 2015 mainly as a result of higher lift truck volumes, partially offset by unfavorable currency movements of $15.5 millionfrom the translation of sales into U.S. dollars.
Revenues in JAPIC declined in 2016 compared with 2015. The decrease was primarily the result of fewer unit shipments, the unfavorable effect of lower pricing oftrucks and a shift in sales to lower-priced products in 2016 compared with 2015.
The following table identifies the components of change in operating profit for 2016 compared with 2015 :
Operating Profit
2015 $ 103.5Decrease in 2016 from: Lift truck gross profit (38.1)Lift truck selling, general and administrative expenses (15.4)Nuvera operations (15.0)Bolzoni operations (0.1)
2016 $ 34.9
The Company recognized operating profit of $34.9 million in 2016 compared with operating profit of $103.5 million in 2015.
The overall decrease in the lift truck business operating profit was primarily due to lower gross profit and higher selling, general and administrative expenses.Gross profit decreased mainly as a result of the unfavorable effect of lower pricing, reduced sales volumes, which led to higher manufacturing variances,unfavorable foreign currency movements of $15.9 million and increased U.S. health care costs. The decrease in gross profit was partially offset by continuedmaterial cost deflation of $28.6 million during 2016 compared with 2015. Selling, general and administrative expenses increased in 2016 compared with 2015mainly due to acquisition-related costs of $6.6 million, higher product development and marketing-related expenses, and increased U.S. health care costs.Favorable foreign currency movements of $5.5 million and lower incentive compensation estimates partially offset the increase in selling, general andadministrative expenses.
Operating profit in the Americas decreased in 2016 compared with 2015 primarily as a result of higher selling, general and administrative expenses mainly from$6.6 million of acquisition-related costs, increased marketing-related expenses, a $3.1 million estimated loss on recovery of assets for recourse obligations,increased product development expenses and increased U.S. health care costs. Gross profit also decreased primarily as a result of the effect of lower productpricing, reduced sales volumes, which led to higher manufacturing variances, and increased U.S. health care costs. The decrease in gross profit was partially offsetby continued material cost deflation of $20.5 million and favorable foreign currency movements of $8.3 million during 2016 compared with 2015.
Operating profit in EMEA declined in 2016 compared with 2015 mainly as a result of lower gross profit partially offset by lower selling, general andadministrative expenses. Gross profit declined primarily from unfavorable currency movements of $20.3 million, lower product pricing and higher warranty-related expenses. The decrease in gross profit was partially offset by material cost deflation of $8.6 million, a shift in sales to higher-margin products and higherunits and parts volumes. Selling, general and administrative expenses decreased primarily due to favorable foreign currency movements of $3.4 million and lowermarketing and bad debt expense in 2016 compared with 2015.
The operating loss in JAPIC increased in 2016 compared with 2015 mainly as a result of lower gross profit from unfavorable currency movements of $3.9 millionand lower product pricing.
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Nuvera's operating loss increased in 2016 from 2015 primarily due to an increase of $13.7 million in development and production start-up expenses, includingunfavorable inventory adjustments to reflect current selling prices. Nuvera's costs associated with producing prototype and early production components at lowvolumes also contributed to the higher development expenses during 2016. In addition, Nuvera had increased marketing and employee-related costs as it continuestransitioning from product development to commercialization and production.
The Company recognized net income attributable to stockholders of $42.8 million in 2016 compared with $74.7 million in 2015. The decrease was primarily theresult of the decrease in operating profit, partially offset by a decrease in the reported income tax rate in 2016 compared with 2015. See "Financial Review -Income Taxes" and Note 6 to the consolidated financial statements in this Annual Report on Form 10-K for further discussion of income taxes.
Income taxesThe income tax provision includes U.S. federal, state and local, and non-U.S. income taxes. In determining the effective income tax rate, the Company analyzesvarious factors, including annual earnings, the laws of taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, theability to use tax credits, net operating loss and capital loss carryforwards, and available tax planning alternatives. Discrete items, including the effect of changes intax laws, tax rates, and certain items with respect to valuation allowances or other unusual or non-recurring tax adjustments are reflected in the interim period inwhich they occur.
Deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences that exist between the financialstatement carrying value of assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards on a taxing jurisdiction basis. TheCompany measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which it expects the temporary differences to berecovered or paid.The authoritative guidance for income taxes requires a reduction of the carrying amounts of deferred tax assets by recording a valuation allowance if, based on theavailable evidence, it is more likely than not (defined as a likelihood of more than 50%) such assets will not be realized. The valuation of deferred tax assetsrequires judgment in assessing the likely future tax consequences of events that have been recognized in the Company's financial statements or tax returns andfuture profitability. The Company's accounting for deferred tax consequences represents its best estimate of those future events. Changes in the Company'sestimates, due to unanticipated events or otherwise, could have a material effect on its financial condition and results of operations. The Company continuallyevaluates its deferred tax assets to determine if a valuation allowance is required.On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Tax Reform Act”). The Tax Reform Act significantlyrevised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018,repealing the deduction for domestic production activities, allowing the immediate expensing of certain qualified capital expenditures, implementing a territorialtax system and imposing a one-time transition tax on certain unremitted earnings of non-U.S. subsidiaries. As a result of the Tax Reform Act, the Companyrecorded the provisional tax effects of $38.2 million, comprised of $33.1 million of tax expense due to the transition tax on the unremitted earnings and profits ofnon-U.S. subsidiaries and $5.1 million of tax expense due to the effects on the Company’s deferred tax assets and liabilities. The final amounts recorded insubsequent financial statements may materially differ from these provisional amounts due to among other things, additional analysis, changes in interpretations ofthe Tax Reform Act including interpretations by state and local taxing authorities and related assumptions of the Company, and additional regulatory guidance thatmay be issued which could potentially effect the measurement of these provisional tax amounts. The provisional amounts are expected to be finalized when theU.S. corporate income tax return for 2017 is filed in 2018, but in no event later than one year from the enactment date.
The one-time transition tax is based on the post-1986 unremitted earnings and profits of non-U.S. subsidiaries which have been previously deferred from U.S.income taxes including such earnings through the measurement date as determined by the Tax Reform Act. The amount of transition tax also depends on theamount of earnings and profits held in cash or other specified assets. The Company had an estimated $310 million of undistributed non-U.S. earnings and profitssubject to the transition tax and recognized a provisional $33.1 million of income tax expense in the fourth quarter of 2017. After the utilization of existing taxcredits, the Company expects to pay cash taxes, including state income taxes, of an estimated $22.5 million with respect to the transition tax payable over eightyears. These amounts may change upon the issuance of additional regulatory guidance or when the Company finalizes its calculation of earnings and profits,including the amounts held in cash
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or other specified assets and its calculation of available foreign tax credits. The Company intends that future distributions will be from earnings which wouldotherwise qualify for the one hundred percent dividends received deduction provided in the Tax Reform Act and earnings which would not result in any significantforeign taxes. As a result, no additional income taxes have been provided for any undistributed foreign earnings not subject to the transition tax, nor any additionaloutside basis differences inherent in these entities, as these amounts continue to be indefinitely reinvested in non-U.S. operations. See Note 6 to the consolidatedfinancial statements in this Annual Report on Form 10-K for further discussion of income taxes.
A reconciliation of the consolidated federal statutory and reported income tax is as follows for the years ended December 31:
2017 2016 2015Income before income taxes $ 93.8 $ 38.3 $ 104.5Statutory taxes at 35% $ 32.8 $ 13.4 $ 36.6Permanent adjustments:
Equity interest earnings (8.1) (2.2) (1.9)Non-U.S. rate differences (7.8) (9.0) (13.3)Federal income tax credits (1.6) (1.7) —State income taxes 1.1 0.1 3.4Valuation allowance 3.4 2.4 9.3Other (0.2) 0.6 1.0
$ (13.2) $ (9.8) $ (1.5)Discrete items:
Tax Reform Act 38.2 — —Provision to return adjustments 0.6 (1.9) (0.2)Valuation allowance (3.3) (2.6) (3.4)Sale of non-U.S. investment (9.1) (1.9) (3.7)Other (1.1) (1.2) 1.6
$ 25.3 $ (7.6) $ (5.7)Income tax provision (benefit) $ 44.9 $ (4.0) $ 29.4Reported income tax rate 47.9% n.m. 28.1%n.m. - not meaningful
The Company's effective income tax rate differs from the U.S. federal statutory tax rate of 35% primarily as a result of equity interest earnings, income taxed innon-U.S. jurisdictions and changes in valuation allowances primarily in non-U.S. jurisdictions.
In addition, the effect of discrete items on the reported income tax rate was as follows:
During 2017, the Company recognized a tax benefit of $9.1 million and a tax expense of $1.4 million for unrecognized tax benefits from an internal sale of asubsidiary between consolidated companies resulting in the repatriation of non-U.S. accumulated earnings taxed at higher rates. In addition, the Company settledvarious federal obligations in Brazil through the utilization of its federal net operating loss carryforwards for which a valuation allowance was previously provided.As a result of the utilization of the underlying deferred tax assets, the Company released the associated valuation allowance previously provided of $4.7 million.This was partly offset by a $1.6 million valuation allowance provided against deferred tax assets in China where the Company has determined that such deferredtax assets no longer meet the more likely than not standard for realization.
During 2016, the Company received a notice from the Italian Tax Authority approving the transfer of certain tax losses as part of an internal restructuring. As aresult, the Company believes it is more likely than not that deferred tax assets for such losses will be realized in the foreseeable future, and has released thevaluation allowance previously provided. The Company also recognized tax benefits from provision to return adjustments primarily related to a U.S. tax deductionfor manufacturing
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activities and adjustments for the taxation of certain foreign earnings and a tax benefit from an internal sale of a subsidiary between affiliated companies resultingin the repatriation of non-U.S. accumulated earnings which triggered a currency loss for U.S. tax purposes.
Other items during 2016 include a tax benefit of $4.0 million. As a result of the Bolzoni acquisition, the Company changed its previous reinvestment assertion; andconsequently, all of the earnings of its European operations are now considered permanently reinvested and the previously provided deferred tax liability is nolonger required. In addition, the Company recognized tax expense of $1.6 million related to non-deductible acquisition expenses and tax expense of $2.1 millionfor net additions for unrecognized tax benefits.
During 2015, a significant downturn was experienced in the Company's Brazilian operations. This significant decrease in operations and actions taken bymanagement to reduce its manufacturing activity to more appropriate levels, coupled with the continued low expectations in the near term for the Brazilian lifttruck market and the continuing devaluation of the Brazilian real, caused the Company in 2015 to forecast a three-year cumulative loss for its Brazilian operations.Although the Company projects earnings over the longer term for its Brazilian operations, such longer-term forecasts are not sufficient positive evidence to supportthe future utilization of deferred tax assets when a three-year loss is determined. Accordingly, in 2015, the Company recorded a valuation allowance adjustment of$1.9 million against its deferred tax assets in Brazil. The Company also recognized $2.7 million, $2.4 million and $5.6 million in 2017, 2016 and 2015,respectively, of valuation allowances related to pre-tax losses in Brazil included in its effective tax rate.
During 2015, the Company came to a tentative agreement in negotiating an Advance Pricing Agreement with the Australian Tax Authority. The terms of theagreement were finalized in 2016 and will extend through 2020. As a result of this agreement, in 2015, the Company released a portion of the valuation allowanceof $4.4 million, related to the deferred tax asset that it expected would be utilized in the foreseeable future. In 2015, the Company also recognized a tax benefitfrom an internal sale of a subsidiary between consolidated companies resulting in the repatriation of non-U.S. accumulated earnings taxed at higher rates.
See Note 6 to the consolidated financial statements in this Annual Report on Form 10-K for further discussion of income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following tables detail the change in cash flow for the years ended December 31 :
2017 2016 Change
Operating activities: Net income $ 48.9 $ 42.3 $ 6.6Depreciation and amortization 42.8 39.1 3.7Stock-based compensation 8.8 4.9 3.9Impairment of long-lived assets 4.9 — 4.9Dividends from unconsolidated affiliates 2.8 5.1 (2.3)Other 0.7 (27.7) 28.4Working capital changes, excluding the effect of business acquisitions 55.8 (112.6) 168.4Net cash provided by (used for) operating activities 164.7 (48.9) 213.6
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2017 2016 Change
Investing activities: Expenditures for property, plant and equipment (41.0) (42.7) 1.7Proceeds from the sale of property, plant and equipment 1.3 13.7 (12.4)Investments in equity securities (5.6) — (5.6)Business acquisitions, net of cash acquired (1.0) (116.1) 115.1Purchase of noncontrolling interest (1.0) — (1.0)Net cash used for investing activities (47.3) (145.1) 97.8
Cash flow before financing activities $ 117.4 $ (194.0) $ 311.4
Net cash provided by operating activities increased $213.6 million in 2017 compared with 2016 primarily as a result of the change in working capital items andother operating activities. The change in working capital was mainly due to accounts payable in the Americas returning to normalized levels during 2017 followingan unplanned systems-related acceleration of supplier payments in December 2016, and lower payments of amounts accrued, primarily in the Americas, in 2017compared with 2016. The change in net cash used for investing activities during 2017 compared with 2016 is mainly the result of the acquisition of Bolzoni in thesecond quarter of 2016.
2017 2016 Change
Financing Activities: Net addition of long-term debt and revolving credit agreements $ 78.0 $ 99.0 $ (21.0)Cash dividends paid (19.8) (19.2) (0.6)Financing fees paid (4.7) (1.7) (3.0)Other (0.4) (0.2) (0.2)
Net cash provided by financing activities $ 53.1 $ 77.9 $ (24.8)
Net cash provided by financing activities decreased $24.8 million in 2017 compared with 2016. The decrease in 2017 was due to borrowings under the Term Loan(as defined below), being used to repay borrowings under the Facility (as defined below) during 2017.
Financing Activities
The Company has a $200.0 million secured, floating-rate revolving credit facility (the "Facility”) that expires in April 2022. There were no borrowings outstandingunder the Facility at December 31, 2017 . The excess availability under the Facility at December 31, 2017 was $195.9 million , which reflects reductions of $4.1million for letters of credit and other restrictions. The Facility consists of a U.S. revolving credit facility in the amount of $120.0 million and a non-U.S. revolvingcredit facility in the 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 inminimum increments of $10.0 million subject to certain conditions. The obligations under the Facility are generally secured by a lien on the working capital assetsof 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 TermLoan Collateral (defined below). The approximate book value of assets held as collateral under the Facility was $1.0 billion as of December 31, 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, as ofDecember 31, 2017 , for U.S. base rate loans and LIBOR loans were 0.25% and 1.25% , respectively. The applicable margin, as of December 31, 2017 , for non-U.S. base rate loans and LIBOR loans was 1.25% . The applicable LIBOR interest rates under the Facility on December 31, 2017 were 2.73% and 1.25% ,respectively, for the U.S. and non-U.S. facility including the applicable floating rate margin. The Facility also required the payment of a fee of 0.350% per annumon the unused commitment as of December 31, 2017 .
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The Facility includes restrictive covenants, which, among other things, limit additional borrowings and investments of the Company and its subsidiaries subject tocertain 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 formabasis, is greater than fifteen percent and less than or equal to twenty percent, the Company may pay dividends subject to achieving a minimum fixed chargecoverage 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 proforma basis, the Company may pay dividends without any minimum fixed charge coverage ratio requirement. The Facility also requires the Company to achieve aminimum fixed charge coverage ratio in certain circumstances in which total excess availability is less than ten percent of the total commitments under the Facilityor 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 December 31,2017, the Company was in compliance with the covenants in the Facility.
During 2017, the Company entered into an agreement for a $200.0 million term loan (the “Term Loan”), which matures in May 2023. The Term Loan requiresquarterly principal payments on the last day of each March, June, September and December commencing September 30, 2017 in an amount equal to $2.5 millionand the final principal repayment due on the May 30, 2023 . The Company may also be required to make mandatory prepayments, in certain circumstances, asprovided in the Term Loan. At December 31, 2017 , there was $195.0 million of principle outstanding under the Term Loan which has been reduced in theconsolidated balance sheet by $4.1 million of discounts and unamortized deferred financing fees.
The obligations under the Term Loan are generally secured by a first priority lien on the present and future shares of capital stock, material real property, fixturesand general intangibles consisting of intellectual property (collectively, the "Term Loan Collateral") and a second priority lien on the remaining collateral of theU.S. borrowers in the Facility. The approximate book value of assets held as collateral under the Term Loan was $710 million as of December 31, 2017 .
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 applicablemargin. 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 loansand 3.75% to 4.00% for Eurodollar loans. The weighted average interest rate on the amount outstanding under the Term Loan at December 31, 2017 was 5.57% .In addition, the Term Loan includes restrictive covenants, which, among other things, limit additional borrowings and investments of the Company subject tocertain thresholds, as provided in the Term Loan. The Term Loan limits the payment of regularly scheduled dividends and other restricted payments to $50.0million 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. AtDecember 31, 2017 , the Company was in compliance with the covenants in the Term Loan.
The Company incurred fees and expenses of $4.7 million in 2017 related to the amendment of the Facility and entry into the Term Loan. These fees were deferredand 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 ofthe corresponding debt.
The Company had other debt outstanding, excluding capital leases, of approximately $80.0 million at December 31, 2017 . In addition to the excess availabilityunder the Facility, the Company had remaining availability of $16.8 million related to other non-U.S. revolving credit agreements.
The Company believes funds available from cash on hand, the Term Loan, the Facility, other available lines of credit and operating cash flows will providesufficient liquidity to meet its operating needs and commitments during the next twelve months and until the expiration of the Facility in April 2022.
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Contractual Obligations, Contingent Liabilities and Commitments
Following is a table summarizing the contractual obligations as of December 31, 2017 :
Payments Due by Period
Contractual Obligations Total 2018 2019 2020 2021 2022 Thereafter
Term Loan $ 195.0 $ 10.0 $ 10.0 $ 10.0 $ 10.0 $ 10.0 $ 145.0Variable interest payments on Term Loan 50.1 10.6 10.0 9.5 8.9 8.4 2.7Revolving credit agreements 6.1 6.1 — — — — —Variable interest payments on revolving credit agreements 0.1 0.1 — — — — —Other debt 73.9 52.4 21.3 0.1 0.1 — —Variable interest payments on other debt 2.7 1.8 0.6 0.2 0.1 — —Capital lease obligations including principal and interest 20.3 7.1 5.9 4.9 2.4 — —Operating leases 74.9 20.2 13.9 10.3 7.4 6.1 17.0Tax Reform Act transition tax liability 22.5 2.1 1.8 1.8 1.8 1.8 13.2Purchase and other obligations 564.3 557.8 1.0 1.0 2.0 — 2.5
Total contractual cash obligations $ 1,009.9 $ 668.2 $ 64.5 $ 37.8 $ 32.7 $ 26.3 $ 180.4
The Tax Reform Act provides for a one-time transition tax on the deemed repatriation of all of the post-1986 undistributed non-U.S. earnings and profits includingsuch earnings through the measurement date as determined by the Act. The Company had an estimated $310 million of undistributed non-U.S. earnings and profitssubject to the transition tax and recognized a provisional $33.1 million of income tax expense in the fourth quarter of 2017. After the utilization of existing taxcredits, the Company expects to pay cash taxes, including state income taxes, of $22.5 million with respect to the transition toll tax payable over eight years.
The Company has a long-term liability of approximately $7.8 million for unrecognized tax benefits, including interest and penalties, as of December 31, 2017 . Atthis time, the Company is unable to make a reasonable estimate of the timing of payments due to, among other factors, the uncertainty of the timing and outcomeof the Company's audits.
An event of default, as defined in the agreements governing the Facility, the Term Loan, other debt agreements, and in operating and capital lease agreements,could cause an acceleration of the payment schedule. No such event of default has occurred or is anticipated under these agreements.
The Company's interest payments are calculated based upon the anticipated payment schedule and the December 31, 2017 applicable rates and applicable marginsas described in the Facility and other debt agreements. A 1/8% increase in the LIBOR rate would increase the Company's estimated total interest payments on debtby $0.2 million.
The purchase and other obligations are primarily for accounts payable, open purchase orders and accrued payroll and incentive compensation.
Pension funding can vary significantly each year due to plan amendments, changes in the market value of plan assets, legislation and the Company's fundingdecisions to contribute any excess above the minimum legislative funding requirements. As a result, pension funding has not been included in the table above.Pension benefit payments are made from assets of the pension plans. The Company expects to contribute approximately $0.5 million to its non-U.S. pension plansin 2018 . No contributions to the Company's U.S. pension plans are expected in 2018 .
In addition, the Company has recourse and repurchase obligations with a maximum undiscounted potential liability of $203.5 million at December 31, 2017 .Recourse and repurchase obligations primarily represent contingent liabilities assumed by the Company to support financing agreements made between theCompany's customers and third-party finance companies for the customer’s purchase of lift trucks from the Company. For these transactions, the Company or athird-party finance company retains a perfected security interest in the lift truck, such that the Company would take possession of the lift truck in the event
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it would become liable under the terms of the recourse and repurchase obligations. Generally, these commitments are due upon demand in the event of default bythe customer. The security interest is normally expected to equal or exceed the amount of the commitment. To the extent the Company would be required toprovide funding as a result of these commitments, the Company believes the value of its perfected security interest and amounts available under existing creditfacilities are adequate to meet these commitments in the foreseeable future.
The amount of the recourse or repurchase obligations changes over time as obligations under existing arrangements expire and new obligations arise in theordinary course of business. Losses anticipated under the terms of the recourse or repurchase obligations were not significant at December 31, 2017 and reserveshave been provided for such losses in the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. See also “Related PartyTransactions” below.
Capital Expenditures
The following table summarizes actual and planned capital expenditures:
Planned 2018 Actual 2017 Actual 2016
Lift truck business $ 42.4 $ 35.3 $ 36.5Bolzoni 6.6 4.7 4.0Nuvera 6.0 1.0 2.2
$ 55.0 $ 41.0 $ 42.7
Planned expenditures in 2018 are primarily for product development, improvements at manufacturing locations, improvements to information technologyinfrastructure and manufacturing equipment. The principal sources of financing for these capital expenditures are expected to be internally generated funds andbank financing.
Capital Structure
December 31
2017 2016 Change
Cash and cash equivalents $ 220.1 $ 43.2 $ 176.9Other net tangible assets 527.8 531.5 (3.7)Intangible assets 56.1 56.2 (0.1)Goodwill 59.1 50.7 8.4
Net assets 863.1 681.6 181.5Total debt (290.7) (211.2) (79.5)
Total equity $ 572.4 $ 470.4 $ 102.0
Debt to total capitalization 34% 31% 3%
RELATED PARTY TRANSACTIONS
The Company has a 20% ownership interest in HYGFS, a joint venture with Wells Fargo Financial Leasing, Inc. (“WF”), formed primarily for the purpose ofproviding financial services to independent Hyster ® and Yale ® lift truck dealers and National Account customers in the United States. The Company’s ownershipin HYGFS is accounted for using the equity method of accounting.
Generally, the Company sells lift trucks through its independent dealer network or directly to customers. These dealers and customers may enter into a financingtransaction with HYGFS or other unrelated third parties. HYGFS provides debt financing to dealers and lease financing to both dealers and customers. HYGFS’total purchases of Hyster ® and Yale ® lift trucks from dealers, and directly from the Company, such that HYGFS could provide retail lease financing to customers,for the years ended December 31, 2017 , 2016 and 2015 were $475.9 million , $438.8 million and $483.2 million , respectively. Of these amounts, $71.1 million ,$69.4 million and $78.6 million for the years ended December 31, 2017 , 2016 and 2015 , respectively, were invoiced directly from the Company to HYGFS sothat the customer could obtain operating lease financing
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from HYGFS. Amounts receivable from HYGFS were $10.4 million and $12.1 million at December 31, 2017 and 2016 , respectively.
Under the terms of the joint venture agreement with WF, the Company provides recourse for wholesale financing provided by HYGFS to the Company's dealers.Additionally, the credit quality of a customer or concentration issues within WF may require providing recourse or repurchase obligations for lift trucks purchasedby customers and financed through HYGFS. At December 31, 2017 , approximately $174.2 million of the Company’s total recourse or repurchase obligations of$203.5 million related to transactions with HYGFS. The Company has reserved for losses under the terms of the recourse or repurchase obligations in itsconsolidated financial statements. Historically, the Company has not had significant losses with respect to these obligations. During 2017 , 2016 and 2015 , the netlosses resulting from customer defaults did not have a material impact on the Company’s results of operations or financial position.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 wouldbecome liable under the terms of HYGFS’ debt agreements with WF in the case of default by HYGFS. At December 31, 2017 , loans from WF to HYGFS totaled$1.0 billion . Although the Company's contractual guarantee was $205.9 million , the loans by WF to HYGFS are secured by HYGFS’ customer receivables, ofwhich the Company guarantees $174.2 million . Excluding the $174.2 million of HYGFS receivables guaranteed by the Company from HYGFS’ loans to WF, theCompany’s incremental obligation as a result of this guarantee to WF is $179.6 million , which is secured by 20% of HYGFS' customer receivables and othersecured assets of $272.3 million . HYGFS has not defaulted under the terms of this debt financing in the past and although there can be no assurances, theCompany 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 December 31, 2017 :
HYGFS TotalTotal recourse or repurchase obligations $ 174.2 $ 203.5Less: exposure limited for certain dealers 54.3 54.3Plus: 7.5% of original loan balance 12.0 12.0 131.9 161.2Incremental obligation related to guarantee to WF 179.6 179.6
Total exposure related to guarantees $ 311.5 $ 340.8
In addition to providing financing to the Company’s dealers, HYGFS provides operating lease financing to the Company. Operating lease obligations primarilyrelate to specific sale-leaseback-sublease transactions for certain customers whereby the Company sells lift trucks to HYGFS, leases these lift trucks back under anoperating lease agreement and then subleases those lift trucks to customers under an operating lease agreement. Total obligations to HYGFS under the operatinglease agreements were $15.8 million and $17.2 million at December 31, 2017 and 2016 , respectively. In addition, the Company provides certain subsidies to itsdealers that are paid directly to HYGFS. Total subsidies were $3.3 million , $2.8 million and $2.8 million for 2017 , 2016 and 2015 , respectively.
The Company provides certain services to HYGFS for which it receives compensation under the terms of the joint venture agreement. These services consistprimarily of administrative functions and remarketing services. Total income recorded by the Company related to these services was $9.5 million in 2017 , $9.8million in 2016 and $14.6 million in 2015 . In addition, in December 2015, the Company received $5.0 million as an amendment fee that was deferred and is beingrecognized over the remaining term of the agreement, which expires in December 2018.
The Company has a 50% ownership interest in Sumitomo NACCO Forklift Co., Ltd. (“SN”), a limited liability company that was formed in 1970 primarily tomanufacture and distribute Sumitomo-branded lift trucks in Japan and export Hyster ® - and Yale ® -branded lift trucks and related components and service partsoutside of Japan. Sumitomo Heavy Industries, Ltd. owns the remaining 50% interest in SN. Each stockholder of SN is entitled to appoint directors representing50% of the vote of SN’s board of directors. All matters related to policies and programs of operation, manufacturing and sales activities require mutual agreementbetween the Company and Sumitomo Heavy Industries, Ltd. prior to a vote of SN’s board of directors. As a result, the Company accounts for its ownership in SNusing the equity method of accounting. The Company purchases products from SN for sale outside of Japan under agreed-upon terms. In 2017 , 2016 and 2015 ,purchases from SN were $46.8 million , $55.0
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million and $57.1 million , respectively. Amounts payable to SN at December 31, 2017 and 2016 were $18.1 million and $16.5 million , respectively.
Additionally, the Company recognized income of $0.4 million , $0.5 million and $0.3 million during 2017 , 2016 and 2015 , respectively, for payments from SNfor use of technology developed by the Company.
OUTLOOK
Americas Outlook
In 2018, the Company expects the Americas market to continue to grow but at a more moderate rate than the double digit growth experienced in 2017, primarily asa result of moderate growth in North America and significantly higher growth in the smaller Brazil market as the economic climate in that country is expected tocontinue to improve. In this market environment, and as share gain initiatives mature, 2018 unit shipments, revenues and parts sales are expected to increase over2017. Full-year 2018 operating profit is also expected to increase moderately as a result of benefits anticipated from an increase in sales of higher-priced, higher-margin Class 1, Class 2 and Class 5 units, partially offset by higher spending levels as further investment is made to fund growth initiatives. The Company expectsto continue to implement pricing actions to help recover anticipated material cost inflation. Operating profit in the first half of 2018 is expected to be modestlylower than the first half of 2017, but is expected to be more than offset by improvements in the second half of the year.
EMEA Outlook
While 2017 growth in EMEA was very strong, the EMEA markets are expected to grow moderately in 2018. As a result of these market conditions, anticipatedmarket share gains and the favorable effect of anticipated price increases and current currency rates, unit shipments, revenues and operating profit are expected tocontinue to increase in 2018. EMEA expects an increase in shipments of Class 2 and Class 3 warehouse trucks and lower-capacity Class 5 internal combustionengine trucks. Higher operating expenses are expected to partially offset the benefits from the anticipated revenue increase. Results in the first half of 2018 areanticipated to be down from the first half of 2017 due to the timing of pricing and material cost increases, with improvements in operating profit returning in thesecond half of the year as price increases go into effect.
JAPIC Outlook
In 2018, the JAPIC market is expected to decline moderately, driven by China. However, as a result of the continued implementation of the Company's strategicinitiatives, revenues and operating results are expected to improve, with higher employee-related expenses expected to partly offset the improvement in operatingresults. Operating results in the first half of 2018 are expected to be lower than the first half of 2017, but are expected to be more than offset by improvements inthe second half of the year.
Overall Lift Truck Outlook
The Company ended 2017 with strong fourth quarter and full-year operating results, as well as strong bookings and backlog, both of which exceeded theCompany's expectations. However, the increase in bookings did not correspond to the unexpectedly large increase in the lift truck market as the Companymaintained its focus on a carefully paced ramp up in production and achievement of price goals through sales of a richer product mix, while maintaining a healthybacklog to achieve production efficiencies.
The Company has realigned its sales and marketing teams and is increasing resources to execute more effectively the Company's specific industry strategies. TheCompany remains focused on increasing unit volumes and market share in its Lift Truck business in 2018 and beyond through the continued implementation of itskey strategic initiatives, which include delivering industry- and customer-focused solutions, providing low cost of ownership and enhanced productivity forcustomers, enhancing independent distribution, growing in emerging markets, maintaining leadership in the attachments business and providing leadership in fuelcells and their applications.
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To meet customer needs, the Company is developing new products in many segments that are expected to support its increased market share objectives. In April2017, the Company launched its new ReachStacker Big Truck model dedicated solely to container-handling applications in defined markets. This product has beenwell-received and is gaining traction. In October 2017, production began on a new 11-ton empty container handler Big Truck with a taller mast for higher stackingand double container handling. The Company is also working with a customer to test a 52-ton Big Truck powered by a lithium-ion battery. The Company launchednew versions of the Class 3 electric-stacker, warehouse truck in the 2017 third quarter in EMEA, and, in the first half of 2018, expects to introduce new Class 3warehouse products in the Americas and new Class 1 electric counterbalanced trucks in EMEA. In addition to the lithium-ion-powered Big Truck, the Company istesting an 8-9 ton high-performance, lithium-ion counterbalanced truck in EMEA and has other plans to expand its Big Truck product line. These new products, aswell as those recently launched and the introduction of other new products in the pipeline, including trucks with new Nuvera fuel cell battery box replacements("BBRs"), are expected to contribute to market share gains, improve revenues and enhance operating margins.
After a much stronger than expected market in 2017, which set new industry records in many regions, the overall global lift truck market in 2018 is expected to becomparable to 2017, with an anticipated modest decrease in the China market offset by moderate growth in the Americas, EMEA and Asia-Pacific markets. TheCompany anticipates that benefits from expected unit and parts revenue increases driven by continued investments in the Company's strategic initiatives will bepartially offset by higher operating expenses and moderating material cost inflation, resulting in an increase in operating profit in 2018 compared with 2017.However, net income in 2018 is expected to increase substantially over 2017 as a result of the absence of the tax adjustments made in 2017 for the tax reformlegislation. As a result of the U.S. tax reform legislation, the Company expects its global Lift Truck effective income tax rate to be in the range of 21% to 24% in2018 based on its expected mix of earnings.
The Company anticipates that commodity costs will continue to increase in the beginning of 2018, but will moderate as the year progresses, although thesemarkets, particularly steel, remain volatile and sensitive to changes in the global economy. The Company will continue to monitor these closely and adjust pricingaccordingly.
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 North America. As aresult of anticipated growth in both the Americas and EMEA and the continued implementation of sales enhancement programs, Bolzoni expects revenues in 2018to increase compared with 2017.
In addition to the anticipated increase in revenues and the expected operating leverage resulting from the sales growth, the continued implementation of several keystrategic programs is expected to generate substantial growth in Bolzoni's 2018 operating profit and net income compared with 2017.
Nuvera Outlook
The organizational realignment designed to enhance the overall strategic positioning and operational effectiveness of the fuel cell business, with Nuvera focused onfuel cell stacks, engines and associated components and the Lift Truck business focused on battery box replacements and integrated engine solutions, was completeas of December 31, 2017, with the exception of the transition of manufacturing of current BBRs from Nuvera to the Lift Truck business.
Due to the relatively high cost position and limited product range of currently available BBRs, the Company is taking a measured approach to developing itscustomer base by building relationships with customers that are willing to pay a premium for the high power density of the current Nuvera BBR solution and theproduct support now offered through the Lift Truck business. In addition, the federal fuel cell tax credit was recently extended for a five-year term retroactive toJanuary 1, 2017, which makes the economics of fuel cell-driven forklifts more competitive.
During the 2017 fourth quarter, a number of additional units were built for further testing and development by the Lift Truck business, and demand for BBRscontinued to increase. The backlog for Nuvera units was just over 300 as of December 31, 2017. Nuvera expects demand to continue to increase in the first quarterof 2018 and gradually grow throughout the year. As the supply chain matures and volumes increase, costs for BBR components are expected to decrease. By early2019, production is expected to begin at the Lift Truck business' manufacturing plant in Greenville, North Carolina, with a steady
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShare,PercentageDataandasOtherwiseNoted)
ramp up in demand anticipated. In addition, in that same time frame, BBR manufacturing at Nuvera's Billerica facility is expected to be phased out and transferredto the Lift Truck business.
With the phase out of BBR production in Billerica, Nuvera will focus on the design, manufacture and sales and marketing of fuel cell stacks and engines. Inaddition to growing demand for BBR engines, Nuvera is seeing significant interest for its stacks and fuel cell engines for applications outside of the BBR marketand believes this could be a significant and profitable growth opportunity.
The Company's current target is to achieve break-even within the next two years, although this target could be achieved earlier or later depending on sales volumesfor fuel cell powered lift trucks, as well as sales in other markets. Operating losses in 2018 are expected to modestly decrease compared with 2017, moderatingmore substantially over 2019. The net loss in 2018 is expected to be comparable to 2017 because a smaller tax benefit is expected to be realized on Nuvera's lossesdue to a lower effective income tax rate under the new U.S. tax reform legislation.
RECENTLY ISSUED ACCOUNTING STANDARDS
For information regarding recently issued accounting standards refer to Note 2 to the Consolidated Financial Statements in this Form 10-K.
EFFECTS OF FOREIGN CURRENCY
The Company operates internationally and enters into transactions denominated in foreign currencies. As a result, the Company is subject to the variability thatarises from exchange rate movements. The effects of foreign currency fluctuations on revenues, operating profit and net income are addressed in the previousdiscussions of operating results. The Company's use of foreign currency derivative contracts is discussed in Item 7A, "Quantitative and Qualitative DisclosuresAbout Market Risk,” of this Form 10-K.
FORWARD-LOOKING STATEMENTS
The statements contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere throughout this AnnualReport on Form 10-K that are not historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section21E of the Securities Exchange Act of 1934. These forward-looking statements are made subject to certain risks and uncertainties, which could cause actual resultsto differ materially from those presented. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the datehereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the datehereof. Among the factors that could cause plans, actions and results to differ materially from current expectations are, without limitation: (1) reduction in demandfor 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 atreasonable rates, or at all, as a result of current economic and market conditions, (3) the political and economic uncertainties in the countries where the Companydoes business, (4) customer acceptance of pricing, (5) delays in delivery or increases in costs, including transportation costs, of raw materials or sourced productsand labor or changes in or unavailability of quality suppliers, (6) exchange rate fluctuations and monetary policies and other changes in the regulatory climate inthe 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 productsby, or more favorable product pricing offered by, competitors, (11) product liability or other litigation, warranty claims or returns of products, (12) theeffectiveness of the cost reduction programs implemented globally, including the successful implementation of procurement and sourcing initiatives, (13) changesmandated by federal, state and other regulation, including tax, health, safety or environmental legislation, (14) the successful commercialization of Nuvera'stechnology, (15) unfavorable effects of geopolitical and legislative developments on global operations, including without limitation, the United Kingdom's exitfrom the European Union, the entry into new trade agreements and the imposition of tariffs, (16) the ability to obtain governmental approvals of the pendingMaximal transaction on the proposed terms and schedule, (17) the possibility that certain conditions to the completion of the Maximal transaction will not be met,(18) the possibility that competing offers may be made for Maximal, (19) conditions affecting the industries in which the Company or Maximal operate maychange, (20) the Company
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShare,PercentageDataandasOtherwiseNoted)
may not be able to successfully integrate Maximal’s operations and employees, and (21) the possibility that the final impact of the U.S. Tax Cuts and Jobs Act onthe 2018 financial results could be more unfavorable than current estimates.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company has entered into certain financing arrangements that require interest payments based on floating interest rates. As such, the Company's financialresults are subject to changes in the market rate of interest. The Company has entered into interest rate swap agreements to reduce the exposure to changes in themarket rate of interest. The Company does not enter into interest rate swap agreements for trading purposes. Terms of the interest rate swap agreements require theCompany to receive a variable interest rate and pay a fixed interest rate. See also Note 8 to the Consolidated Financial Statements in this Annual Report on Form10-K.
For purposes of risk analysis, the Company uses sensitivity analysis to measure the potential loss in fair value of financial instruments sensitive to changes ininterest rates. The Company assumes that a loss in fair value is an increase to its liabilities. The fair value of the Company's interest rate swap agreements was a netasset of $0.8 million at December 31, 2017 .
A hypothetical 10% decrease in interest rates would cause a decrease in the fair value of interest rate swap agreements and the resulting fair value would be aliability of $0.4 million.
FOREIGN CURRENCY EXCHANGE RATE RISK
The Company operates internationally and enters into transactions denominated in foreign currencies. As such, the Company's financial results are subject to thevariability that arises from exchange rate movements. The Company uses forward foreign currency exchange contracts to partially reduce risks related totransactions denominated in foreign currencies and not for trading purposes. These contracts generally mature within 36 months and require the companies to buyor sell euros, U.S. dollars, Japanese yen, British pounds, Swedish kroner, Mexican pesos and Australian dollars for its functional currency at rates agreed to at theinception of the contracts. The fair value of these contracts was a net liability of $2.1 million at December 31, 2017 . See also Note 8 to the Consolidated FinancialStatements in this Annual Report on Form 10-K.
For purposes of risk analysis, the Company uses sensitivity analysis to measure the potential loss in fair value of financial instruments sensitive to changes inforeign currency exchange rates. The Company assumes that a loss in fair value is either a decrease to its assets or an increase to its liabilities. Assuming ahypothetical 10% weakening of the U.S. dollar compared with other foreign currencies at December 31, 2017 , the fair value of foreign currency-sensitive financialinstruments, which primarily represent forward foreign currency exchange contracts, would be decreased by $19.3 million compared with the fair value atDecember 31, 2017 . It is important to note that the change in fair value indicated in this sensitivity analysis would be somewhat offset by changes in therevaluation of the underlying receivables and payables.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is set forth in the Financial Statements and Supplementary Data contained in Part IV of this Annual Report on Form 10-Kand is hereby incorporated herein by reference to such information.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements with accountants on accounting and financial disclosure for the three-year period ended December 31, 2017 .
Item 9A . CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures: An evaluation was carried out under the supervision and with the participation of the Company'smanagement, including the principal executive officer and the principal financial officer, of the effectiveness of the Company's disclosure controls and proceduresas of the end of the period covered by this report. Based on that evaluation, these officers have concluded that the Company's disclosure controls and procedureswere effective.
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Management's report on internal control over financial reporting: Management is responsible for establishing and maintaining adequate internal control overfinancial reporting. Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, theCompany conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control — IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this evaluation under the frameworkin Internal Control — Integrated Framework, management concluded that the Company's internal control over financial reporting was effective as of December 31,2017 . The Company's effectiveness of internal control over financial reporting has been audited by Ernst & Young, LLP, an independent registered publicaccounting firm, as stated in its report, which is included in Item 15 of this Annual Report on Form 10-K and is incorporated herein by reference.
Changes in internal control: During the fourth quarter of 2017 , there have been no changes in the Company's internal control over financial reporting that havematerially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9B . OTHER INFORMATION
None
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to Directors of the Company will be set forth in the 2018 Proxy Statement under the subheadings “Part Two — Proposals to be Voted onat the 2018 Annual Meeting — Election of Directors (Proposal 1) — Director Nominee Information,” which information is incorporated herein by reference.
Information with respect to the audit review committee and the audit review committee financial expert will be set forth in the 2018 Proxy Statement under thesubheading “Part One — Corporate Governance Information — Directors’ Meetings and Committees,” which information is incorporated herein by reference.
Information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 by the Company's Directors, executive officers and holders ofmore than ten percent of the Company's equity securities will be set forth in the 2018 Proxy Statement under the subheading “Part Two — Proposals to be Votedon at the 2018 Annual Meeting — Election of Directors (Proposal 1) — Section 16(a) Beneficial Ownership Reporting Compliance,” which information isincorporated herein by reference.
Information regarding the executive officers of the Company is included in this Annual Report on Form 10-K as Item 4A of Part I as permitted by Instruction 3 toItem 401(b) of Regulation S-K.
Information with respect to compensation committee interlocks and insider participation in compensation decisions will be set forth in the 2018 Proxy Statementunder the subheading "Part Three — Executive Compensation Information — Compensation Discussion and Analysis — Compensation Committee Interlocks andInsider Participation," which information is incorporated herein by reference.
The Company has adopted a code of ethics applicable to all Company personnel, including the principal executive officer, principal financial officer, principalaccounting officer and controller, or other persons performing similar functions. The code of ethics, entitled the “Code of Corporate Conduct,” is posted on theCompany's website at www.hyster-yale.com under “Corporate Governance.” Amendments and waivers of the Company's Code of Corporate Conduct for directorsor executive officers of the Company, if any, will be disclosed on the Company's website or on a current report on Form 8-K.
Item 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation will be set forth in the 2018 Proxy Statement under the subheadings “Part Two — Proposals to be Voted on atthe 2018 Annual Meeting — Election of Directors (Proposal 1) — Director Compensation” and “Part Three — Executive Compensation Information,” whichinformation is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information with respect to security ownership of certain beneficial owners and management will be set forth in the 2018 Proxy Statement under the heading“Beneficial Ownership of Class A Common and Class B Common,” which information is incorporated herein by reference.
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Equity Compensation Plan Information
The following table sets forth information as of December 31, 2017 with respect to our compensation plans (including individual compensation arrangements)under which equity securities are authorized for issuance, aggregated as follows:
Plan Category
Number of Securities to Be IssuedUpon Exercise of OutstandingOptions, Warrants and Rights
Weighted-Average Exercise Priceof Outstanding Options, Warrants
and Rights
Number of Securities RemainingAvailable for Future Issuance
Under Equity Compensation Plans(Excluding Securities Reflected in
Column(a))
Class A Shares: (a) (b) (c)Equity compensation plans approved by securityholders — N/A 527,910Equity compensation plans not approved by securityholders — N/A —
Total — N/A 527,910
Class B Shares: Equity compensation plans approved by securityholders — N/A —Equity compensation plans not approved by securityholders — N/A —
Total — N/A —
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information with respect to director independence, certain relationships and related transactions will be set forth in the 2018 Proxy Statement under the subheading“Part One - Corporate Governance Information — Directors’ Meetings and Committees,” which information is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information with respect to principal accountant fees and services will be set forth in the 2018 Proxy Statement under the subheading “Part Two - Proposals to beVoted on at the 2018 Annual Meeting — Confirmation of Appointment of Ernst & Young, LLP, the Independent Registered Public Accounting Firm of theCompany, for the Current Fiscal Year (Proposal 2)” which information is incorporated herein by reference.
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) The response to Item 15(a)(1) is set forth beginning at page F-1 of this Annual Report on Form 10-K.
(a) (2) The response to Item 15(a)(2) is set forth beginning at page F-45 of this Annual Report on Form 10-K.
(a) (3) Listing of Exhibits — See the exhibit index beginning at page 38 of this Annual Report on Form 10-K.
(b) The response to Item 15(b) is set forth beginning at page 38 of this Annual Report on Form 10-K.
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EXHIBIT INDEX
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession.
2.1 Separation Agreement, dated as of September 28, 2012, by and between NACCO Industries, Inc. and Hyster-Yale Materials Handling, Inc. isincorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, dated October 4, 2012, Commission File No. 1-35646.
2.2
Purchase Agreement, dated February 14, 2016, by and among Hyster-Yale Materials Handling, Inc., as Purchaser, and Emilio Bolzoni, RobertoScotti, Franco Bolzoni, Paolo Mazzoni and Pier Luigi Magnelli, as Sellers is incorporated by reference to Exhibit 2.1 to the Company's CurrentReport on Form 8-K, dated February 14, 2016, Commission File Number 000-54799.
2.3
Amendment Agreement, dated April 1, 2016, by and among Hyster-Yale Capital Holding Italy S.r.l., as Purchaser, and Emilio Bolzoni, RobertoScotti, Franco Bolzoni, Paolo Mazzoni and Pier Luigi Magnelli, as Sellers is incorporated by reference to Exhibit 2.1 to the Company's CurrentReport on Form 8-K, dated April 1, 2016, Commission File Number 000-54799.
(3) Articles of Incorporation and By-laws.
3.1(i)
Second Amended and Restated Certificate of Incorporation of Hyster-Yale Materials Handling, Inc. is incorporated by reference to Exhibit 3.1 toHyster-Yale Materials Handling, Inc.'s Amendment No. 5 to the Registration Statement on Form S-1, dated September 26, 2012, Commission FileNo. 333-182388.
3.1(ii) Amended and Restated By-laws of Hyster-Yale Materials Handling, Inc. are incorporated by reference to Exhibit 3.1 to the Company's CurrentReport on Form 8-K, dated February 17, 2015, Commission File No. 000-54799.
(4) Instruments defining the rights of security holders, including indentures.
4.1 Specimen of Hyster-Yale Materials Handling, Inc. Class A Common Stock certificate is incorporated by reference to Exhibit 4.1 to Hyster-YaleMaterials Handling, Inc.'s Registration Statement on Form S-1, dated June 28, 2012, Commission File No. 333-182388.
4.2 Specimen of Hyster-Yale Materials Handling, Inc. Class B Common Stock certificate is incorporated by reference to Exhibit 4.2 to Hyster-YaleMaterials Handling, Inc.'s Registration Statement on Form S-1, dated June 28, 2012, Commission File No. 333-182388.
(10) Material Contracts.
10.1
Separation Agreement, dated as of September 28, 2012, by and between NACCO Industries, Inc. and Hyster-Yale Materials Handling, Inc. isincorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, dated October 4, 2012, Commission File Number 1-35646.
10.2
Transition Services Agreement, dated as of September 28, 2012, by and between NACCO Industries, Inc. and Hyster-Yale Materials Handling, Inc.is incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, dated October 4, 2012, Commission File Number 1-35646.
10.3
Amendment No. 1, effective April 1, 2013, to the Transition Services Agreement, dated as of September 28, 2012, by and between NACCOIndustries, Inc. and Hyster-Yale Materials Handling, Inc. is incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form10-Q for the quarter ended March 31, 2013, Commission File Number 000-54799.
10.4
Amendment No. 2, effective July 1, 2013, to the Transition Services Agreement, dated as of September 28, 2012, by and between NACCOIndustries, Inc. and Hyster-Yale Materials Handling, Inc. is incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form10-Q for the quarter ended June 30, 2013, Commission File Number 000-54799.
10.5
Tax Allocation Agreement, dated September 28, 2012, by and between NACCO Industries, Inc. and Hyster-Yale Materials Handling, Inc. isincorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, dated October 4, 2012, Commission File Number 1-35646.
10.6
Stockholders' Agreement, dated as of September 28, 2012, by and among the Participating Stockholders (as defined therein), Hyster-Yale MaterialsHandling, Inc. and the Depository (as defined therein) is incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K,dated October 4, 2012, Commission File No. 1-35646.
10.7
First Amendment to Stockholders' Agreement, dated as of December 31, 2012, by and among the Depository, Hyster-Yale Materials Handling,Inc., the new Participating Stockholder identified on the signature pages thereto and the Participating Stockholders under the Stockholders'Agreement, dated as of September 28, 2012, as amended, by and among the Depository, Hyster-Yale Materials Handling, Inc. and the ParticipatingStockholders is incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K, filed by the Company on February 19,2013, Commission File Number 000-54799.
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10.8
Second Amendment to Stockholders' Agreement, dated as of January 18, 2013, by and among the Depository, Hyster-Yale Materials Handling,Inc., the new Participating Stockholder identified on the signature pages thereto and the Participating Stockholders under the Stockholders'Agreement, dated as of September 28, 2012, as amended, by and among the Depository, Hyster-Yale Materials Handling, Inc. and the ParticipatingStockholders is incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K, filed by the Company on February 19,2013, Commission File Number 000-54799.
10.9
Third Amendment to Stockholders' Agreement, dated as of March 27, 2015, by and among the Depository, Hyster-Yale Materials Handling, Inc.,the new Participating Stockholder identified on the signature pages thereto and the Participating Stockholders under the Stockholders' Agreement,dated as of September 28, 2012, as amended, by and among the Depository, Hyster-Yale Materials Handling, Inc. and the ParticipatingStockholders is incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed by the Company on April 29,2015, Commission File Number 000-54799.
10.10
Fourth Amendment to Stockholders' Agreement, dated as of December 29, 2015, by and among the Depository, Hyster-Yale Materials Handling,Inc., the new Participating Stockholder identified on the signature pages thereto and the Participating Stockholders under the Stockholders'Agreement, dated as of September 28, 2012, as amended, by and among the Depository, Hyster-Yale Materials Handling, Inc. and the ParticipatingStockholders is incorporated by reference to Exhibit 10 filed with Amendment No. 4 to the Statement on Schedule 13D, filed by the ReportingPersons named therein on February 16, 2016, Commission File Number 005-87003.
10.11
Fifth Amendment to Stockholders' Agreement, dated as of December 2, 2016, by and among the Depository, Hyster-Yale Materials Handling, Inc.,the new Participating Stockholder identified on the signature pages thereto and the Participating Stockholders under the Stockholders' Agreement,dated as of September 28, 2012, as amended, by and among the Depository, Hyster-Yale Materials Handling, Inc. and the ParticipatingStockholders is incorporated by reference to Exhibit No. 11 filed with Amendment No. 5 to the Statement on Schedule 13D, filed by the reportingpersons named therein on February 14, 2017, Commission File Number 005-38001.
10.12
Sixth Amendment to Stockholders' Agreement, dated as of December 22, 2016, by and among the Depository, Hyster-Yale Materials Handling,Inc., the new Participating Stockholder identified on the signature pages thereto and the Participating Stockholders under the Stockholders'Agreement, dated as of September 28, 2012, as amended, by and among the Depository, Hyster-Yale Materials Handling, Inc. and the ParticipatingStockholders is incorporated by reference to Exhibit No. 12 filed with Amendment No. 5 to the Statement on Schedule 13D, filed by the reportingpersons named therein on February 14, 2017, Commission File Number 005-38001.
10.13
Seventh Amendment to Stockholders' Agreement, dated as of February 6, 2017, by and among the Depository, Hyster-Yale Materials Handling,Inc., the new Participating Stockholder identified on the signature pages thereto and the Participating Stockholders under the Stockholders'Agreement, dated as of September 28, 2012, as amended, by and among the Depository, Hyster-Yale Materials Handling, Inc. and the ParticipatingStockholders is incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed by the Company on May 2, 2017,Commission File Number 000-54799.
10.14* The Hyster-Yale Group, Inc. Executive Excess Retirement Plan (Effective as of January 1, 2016) is incorporated by reference to Exhibit 10.13 tothe Company's Annual Report on Form 10-K, filed by the Company on February 28, 2017, Commission File Number 000-54799.
10.15* Hyster-Yale Materials Handling, Inc. Long-Term Equity Incentive Plan (Effective September 28, 2012), is attached hereto.10.16*
Form Award Agreement for the Hyster-Yale Materials Handling, Inc. Long-Term Equity Incentive Plan (Effective as of the Spin-Off Date) isincorporated by reference to Exhibit 10.66 to Hyster-Yale Materials Handling, Inc.'s Amendment No. 3 to the Registration Statement on Form S-1,dated September 13, 2012, Commission File Number 333-182388.
10.17*
Form Award Agreement for the Hyster-Yale Materials Handling, Inc. Long-Term Equity Incentive Plan (Effective as of the Spin-Off Date) isincorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K, filed by the Company on February 19, 2015,Commission File Number 000-54799.
10.18*
Hyster-Yale Materials Handling, Inc. Supplemental Long-Term Equity Incentive Plan (Effective as of the Spin-Off Date) is incorporated byreference to Exhibit 10.67 to Hyster-Yale Materials Handling, Inc.'s Amendment No. 3 to the Registration Statement on Form S-1, datedSeptember 13, 2012, Commission File Number 333-182388.
10.19*
Form Award Agreement for the Hyster-Yale Materials Handling, Inc. Supplemental Long-Term Equity Incentive Plan (Effective as of the Spin-OffDate) is incorporated by reference to Exhibit 10.68 to Hyster-Yale Materials Handling, Inc.'s Amendment No. 3 to the Registration Statement onForm S-1, dated September 13, 2012, Commission File Number 333-182388.
10.20*
Hyster-Yale Materials Handling, Inc. Non-Employee Directors' Equity Compensation Plan is incorporated by reference to Exhibit 10.69 to Hyster-Yale Materials Handling, Inc.'s Amendment No. 3 to the Registration Statement on Form S-1, dated September 13, 2012, Commission File Number333-182388.
10.21*
Hyster-Yale Materials Handling, Inc. and Subsidiaries Director Fee Policy (Amended Effective as of January 1, 2016) is incorporated by referenceto Exhibit 10.20 to the Company's Annual Report on Form 10-K, filed by the Company on February 17, 2016, Commission File Number 000-54799.
10.22*
Hyster-Yale Materials Handling, Inc. and Subsidiaries Director Fee Policy (Amended Effective as of January 1, 2017) is incorporated by referenceto Exhibit 10.22 to the Company's Annual Report on Form 10-K, filed by the Company on February 28, 2017, Commission File Number 000-54799.
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10.23* Hyster-Yale Materials Handling, Inc. and Subsidiaries Director Fee Policy (Amended Effective as of January 1, 2018) is attached hereto.10.24*
The Hyster-Yale Group, Inc. Unfunded Benefit Plan (As Amended and Restated as of January 1, 2016) is incorporated by reference to Exhibit10.23 to the Company's Annual Report on Form 10-K, filed by the Company on February 28, 2017, Commission File Number 000-54799.
10.25*
The Hyster-Yale Group, Inc. Long-Term Incentive Compensation Plan (Amended and Restated Effective as of January 1, 2016) is incorporated byreference to Exhibit 10.24 to the Company's Annual Report on Form 10-K, filed by the Company on February 28, 2017, Commission File Number000-54799.
10.26*
The Hyster-Yale Group Inc. Annual Incentive Compensation Plan (Amended and Restated Effective as of January 1, 2016) is incorporated byreference to Exhibit 10.25 to the Company's Annual Report on Form 10-K, filed by the Company on February 28, 2017, Commission File Number000-54799.
10.27* Hyster-Yale Group, Inc. Excess Retirement Plan (Amended and Restated Effective January 1, 2016) is incorporated by reference to Exhibit 10.35to the Company's Annual Report on Form 10-K, filed by the Company on February 17, 2016, Commission File Number 000-54799.
10.28 Amendment, dated as of January 1, 1994, to the Third Amendment and Restated Operating Agreement dated as of November 7, 1991, betweenNACCO Materials Handling Group and AT&T Commercial Finance Corporation is attached hereto.
10.29
Equity joint venture contract, dated November 27, 1997, between Shanghai Perfect Jinqiao United Development Company Ltd., People’s Republicof China, NACCO Materials Handling Group, Inc., USA, and Sumitomo-Yale Company Ltd., Japan is incorporated by reference to Exhibit 10.3 toNMHG Holding Co.’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248.
10.30
First Amended and Restated Recourse and Indemnity Agreement, dated November 21, 2013, by and among General Electric Capital Corporation,NMHG Financial Services, Inc, and NACCO Materials Handling Group, Inc. is incorporated by reference to Exhibit 10.36 to the Company'sAnnual Report on Form 10-K, filed by the Company on February 19, 2014, Commission File Number 000-54799.
10.31
Second Amended and Restated Joint Venture and Shareholders Agreement between General Electric Capital Corporation and NACCO MaterialsHandling Group, Inc., dated November 21, 2013 is incorporated by reference to Exhibit 10.37 to the Company's Annual Report on Form 10-K,filed by the Company on February 19, 2014, Commission File Number 000-54799.
10.32
Amendment to Second Amended and Restated Joint Venture and Shareholders Agreement between General Electric Capital Corporation andNACCO Materials Handling Group, Inc., dated November 21, 2013 is incorporated by reference to Exhibit 10.1 to the Company's Current Reporton Form 8-K, filed by the Company on December 29, 2015, Commission File Number 000-54799.
10.33
International Operating Agreement, dated April 15, 1998, between NACCO Materials Handling Group, Inc. and General Electric Capital Corp. (the“International Operating Agreement”) is incorporated by reference to Exhibit 10.7 to NMHG Holding Co.’s Registration Statement on Form S-4,dated May 28, 2002, Commission File Number 333-89248.
10.34
Guaranty Agreement, dated November 21, 2013, by NACCO Materials Handling Group, Inc. to General Electric Capital Corporation isincorporated by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K, filed by the Company on February 19, 2014,Commission File Number 000-54799.
10.35 Amendment No. 1 to the International Operating Agreement, dated as of October 21, 1998 is incorporated by reference to Exhibit 10.8 to NMHGHolding Co.’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248.
10.36 Amendment No. 2 to the International Operating Agreement, dated as of December 1, 1999, is incorporated by reference to Exhibit 10.9 to NMHGHolding Co.’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248.
10.37 Amendment No. 3 to the International Operating Agreement, dated as of May 1, 2000, is incorporated by reference to Exhibit 10.10 to NMHGHolding Co.’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248.
10.38
Letter agreement, dated November 22, 2000, between General Electric Capital Corporation and NACCO Materials Handling Group, Inc. amendingthe International Operating Agreement is incorporated by reference to Exhibit 10.11 to NMHG Holding Co.’s Registration Statement on Form S-4,dated May 28, 2002, Commission File Number 333-89248.
10.39
A$ Facility Agreement, dated November 22, 2000, between GE Capital Australia and National Fleet Network Pty Limited is incorporated byreference to Exhibit 10.12 to NMHG Holding Co.’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248.
10.40
Letter Agreement, dated March 12, 2004, between General Electric Capital Corporation and NACCO Materials Handling Group, Inc. amending theInternational Operating Agreement is incorporated by reference to Exhibit 10.36 to NMHG Holding Co.’s Quarterly Report on Form 10-Q for thequarter ended March 31, 2004, Commission File Number 333-89248.
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10.41
Letter Agreement, dated December 15, 2004, between General Electric Capital Corporation and NACCO Materials Handling Group, Inc. amendingthe International Operating Agreement is incorporated by reference to Exhibit 10.1 to NMHG Holding Co.’s Current Report on Form 8-K, datedFebruary 18, 2005, Commission File Number 333-89248.
10.42
Letter Agreement, dated February 14, 2005, between General Electric Capital Corporation and NACCO Materials Handling Group, Inc. amendingthe International Operating Agreement is incorporated by reference to Exhibit 10.2 to NMHG Holding Co.’s Current Report on Form 8-K, datedFebruary 18, 2005, Commission File Number 333-89248.
10.43 Letter Agreement, dated March 28, 2005, between NACCO Materials Handling Group, Inc. and General Electric Capital Corporation isincorporated by reference to Exhibit 10.1 to NACCO’s Current Report on Form 8-K, dated April 1, 2005, Commission File Number 1-9172.
10.44 Letter Agreement, dated May 31, 2005, between NACCO Materials Handling Group, Inc. and General Electric Capital Corporation is incorporatedby reference to Exhibit 10.1 to NACCO’s Current Report on Form 8-K, dated June 6, 2005, Commission File Number 1-9172.
10.45
Amendment No. 5, dated September 29, 2005, to the International Operating Agreement between NACCO Materials Handling Group, Inc. andGeneral Electric Capital Corporation is incorporated by reference to Exhibit 10.1 to NMHG Holding Co.’s Current Report on Form 8-K, datedOctober 4, 2005, Commission File Number 333-89248.
10.46
Amendment No. 7, effective as of July 1, 2008, to the International Operating Agreement, dated as of April 15, 1998, by and between NACCOMaterials Handling Group, Inc. and General Electric Capital Corporation, is incorporated by reference to Exhibit 10.2 to NACCO’s Current Reporton Form 8-K, dated August 1, 2008, Commission File Number 1-9172.
10.47
Amendment No. 2, effective as of July 1, 2008, to the Recourse and Indemnity Agreement, dated as of October 21, 1998, by and among NACCOMaterials Handling Group, Inc., NMHG Financial Services, Inc. and General Electric Capital Corporation, is incorporated by reference toExhibit 10.3 to NACCO’s Current Report on Form 8-K, dated August 1, 2008, Commission File Number 1-9172.
10.48 Letter Agreement executed October 15, 2008 by and between NACCO Materials Handling Group, Inc. and General Electric Capital Corporation isincorporated by reference to Exhibit 10.1 to NACCO’s Current Report on Form 8-K, dated October 20, 2008, Commission File Number 1-9172.
10.49 Guarantee Agreement, dated March 1, 2016, by Hyster-Yale Materials Handling, Inc. in favor of Wells Fargo Financial Leasing, Inc. isincorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, dated March 1, 2016.
10.50 Guarantee Agreement, dated March 1, 2016, by Hyster-Yale Group, Inc. in favor of Wells Fargo Financial Leasing, Inc. is incorporated byreference to Exhibit 10.2 to the Company's Current Report on Form 8-K, dated March 1, 2016.
10.51
Loan, Security and Guaranty Agreement dated as of April 28, 2016 among Hyster-Yale Materials Handling, Inc. and Hyster-Yale Group, Inc., asU.S. Borrowers, Hyster-Yale Nederland B.V., Hyster-Yale International B.V., Hyster-Yale Holding B.V. and Hyster-Yale Capital Holding B.V., asDutch Borrowers, Hyster-Yale UK Limited and Hyster-Yale Capital UK Limited, as UK Borrowers, any other Borrowers party thereto from timeto time and certain Persons party thereto from time to time as Guarantors, certain financial institutions, as Lenders, Bank of America, N.A., asAdministrative Agent and Security Trustee, Merrill Lynch, Pierce, Fenner & Smith Incorporated and CitiGroup Global Markets Inc., as Joint LeadArrangers and Joint Book Managers, and CitiBank, N.A., as Syndication Agent is incorporated by reference to Exhibit 10.1 to the Company'sCurrent Report on Form 8-K, dated April 28, 2016.
10.52
Term Loan Credit Agreement dated as of May 30, 2017 among Hyster-Yale Group, Inc. as the Borrower, Hyster-Yale Materials Handling, Inc.,Bank of America, N.A., as Administrative Agent is incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q forthe quarter ended June 30, 2017, Commission File Number 000-54799.
10.53
First Amendment to Amended and Restated Loan, Security and Guaranty Agreement dated as of May 30, 2017 among Hyster-Yale MaterialsHandling, Inc. and Hyster-Yale Group, Inc., as U.S. Borrowers, Hyster-Yale Nederland B.V., Hyster-Yale International B.V., Hyster-Yale HoldingB.V. and Bolzoni Capital Holding B.V., as Dutch Borrowers, Hyster-Yale UK Limited and Bolzoni Capital UK Limited, as UK Borrowers, anyother Borrowers party thereto from time to time and certain Persons party thereto from time to time as Guarantors, certain financial institutions, asLenders, Bank of America, N.A., as Administrative Agent and Security Trustee is incorporated by reference to Exhibit 10.2 to the Company'sQuarterly Report on Form 10-Q for the quarter ended June 30, 2017, Commission File Number 000-54799.
10.54
Commitment Agreement for the Purchase and Sale of Real Estate and Other Covenants, dated May 23, 2013, by and between NACCO MaterialsHandling Group Brasil Ltda. and Synergy Empreendimentos E Participacoes Ltda. is incorporated by reference to Exhibit 10.1 to the Company'sQuarterly Report on Form 10-Q for the quarter ended June 30, 2013, Commission File Number 000-54799.
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10.55
Amendment to the Commitment Agreement for the Purchase and Sale of Real Estate and Other Covenants, dated May 23, 2013, by and betweenNACCO Materials Handling Group Brasil Ltda. and Synergy Empreendimentos E Participacoes Ltda. is incorporated by reference to Exhibit 10.2to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, Commission File Number 000-54799.
10.56
Letter Agreement, dated August 1, 2013, between Synergy Empreendimentos E Participacoes Ltda. and NACCO Materials Handling Group BrasilLtda. Amending the Commitment Agreement for the Purchase and Sale of Real Estate and Other Covenants is incorporated by reference to Exhibit10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, Commission File Number 000-54799.
10.57 Equity Transfer Agreement, dated December 6, 2017, by and between KNSN Pipe & Pile Company Limited and Hyster-Yale Acquisition HoldingLTD Regarding Zhejiang Maximal Forklift Co., LTD. is attached hereto.
(21) Subsidiaries.
21.1 A list of the subsidiaries of the Company is attached hereto.
(23) Consents of experts and counsel.
23.1 Consent of Ernst & Young LLP.
(24) Powers of Attorney.
24.1 A copy of a power of attorney for John C. Butler Jr. is attached hereto.24.2 A copy of a power of attorney for Carolyn Corvi is attached hereto.24.3 A copy of a power of attorney for John P. Jumper is attached hereto.24.4 A copy of a power of attorney for Dennis W. LaBarre is attached hereto.24.5 A copy of a power of attorney for H. Vincent Poor is attached hereto.24.6 A copy of a power of attorney for Claiborne R. Rankin is attached hereto.24.7 A copy of a power of attorney for John M. Stropki is attached hereto.24.8 A copy of a power of attorney for Britton T. Taplin is attached hereto.24.9 A copy of a power of attorney for Eugene Wong is attached hereto.(31) Rule 13a-14(a)/15d-14(a) Certifications.
31(i)(1) Certification of Alfred M. Rankin, Jr. pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act is attached hereto.31(i)(2) Certification of Kenneth C. Schilling pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act is attached hereto.(32)
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed and dated byAlfred M. Rankin, Jr. and Kenneth C. Schilling
101.SCH XBRL Taxonomy Extension Schema Document101.CAL XBRL Taxonomy Extension Calculation Linkbase Document101.DEF XBRL Taxonomy Extension Definition Linkbase Document101.LAB XBRL Taxonomy Extension Label Linkbase Document101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*
Management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item15(b) of this Annual Report on Form10-K.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.
Hyster-Yale Materials Handling, Inc. By: /s/ Kenneth C. Schilling Kenneth C. Schilling
Senior Vice President and Chief Financial Officer (principalfinancial and accounting officer)
February 27, 2018
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.
/s/ Alfred M. Rankin, Jr. Chairman, President and Chief Executive Officer (principalexecutive officer), Director
February 27, 2018
Alfred M. Rankin, Jr.
/s/ Kenneth C. Schilling Senior Vice President and Chief Financial Officer (principalfinancial and accounting officer)
February 27, 2018
Kenneth C. Schilling
* J.C. Butler, Jr. Director February 27, 2018J.C. Butler, Jr. * Carolyn Corvi Director February 27, 2018Carolyn Corvi * John P. Jumper Director February 27, 2018John P. Jumper
* Dennis W. LaBarre Director February 27, 2018Dennis W. LaBarre
* H. Vincent Poor Director February 27, 2018H. Vincent Poor * Claiborne R. Rankin Director February 27, 2018Claiborne R. Rankin * John M. Stropki Director February 27, 2018John M. Stropki * Britton T. Taplin Director February 27, 2018Britton T. Taplin * Eugene Wong Director February 27, 2018Eugene Wong
* Kenneth C. Schilling, by signing his name hereto, does hereby sign this Annual Report on Form 10-K on behalf of each of the above named and designateddirectors of the Company pursuant to a Power of Attorney executed by such persons and filed with the Securities and Exchange Commission.
/s/ Kenneth C. Schilling February 27, 2018Kenneth C. Schilling, Attorney-in-Fact
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ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 15(a)(1) AND (2)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 2017
HYSTER-YALE MATERIALS HANDLING, INC.
CLEVELAND, OHIO
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FORM 10-K
ITEM 15(a)(1) AND (2)
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of Hyster-Yale Materials Handling, Inc. and Subsidiaries are incorporated by reference in Item 8:
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm — For each of the three years in the period ended December 31, 2017 F-3Report of Ernst & Young LLP, Independent Registered Public Accounting Firm on Internal Control over Financial Reporting — as of December 31, 2017 F-4Consolidated Statements of Operations F-5Consolidated Statements of Comprehensive Income (Loss) F-6Consolidated Balance Sheets F-7Consolidated Statements of Cash Flows F-8Consolidated Statements of Equity F-9Notes to Consolidated Financial Statements. F-10
The following consolidated financial statement schedule of Hyster-Yale Materials Handling, Inc. and Subsidiaries are included in Item 15(a):
Schedule II — Valuation and Qualifying Accounts F-45
All other schedules for which provision is made in the applicable accounting regulation of the SEC are not required under the related instructions or areinapplicable, and therefore have been omitted.
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Hyster-Yale Materials Handling, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Hyster-Yale Materials Handling, Inc. and Subsidiaries (“the Company”) as of December 31,2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), cash flows and equity for each of the three years in the periodended December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidatedfinancial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company atDecember 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformitywith U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internalcontrol over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 27, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statementsbased on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordancewith the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures toassess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Suchprocedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating theaccounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believethat our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP We have served as the Company’s auditor since 2002.
Cleveland, Ohio February 27, 2018
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Hyster-Yale Materials Handling, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Hyster-Yale Materials Handling, Inc. and Subsidiaries' ("the Company") internal control over financial reporting as of December 31, 2017, basedon criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013framework) (the COSO criteria). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balancesheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), cash flows and equityfor each of the three years in the period ended December 31, 2017 and the related notes and financial statement schedule listed in the Index at Item 15(a) of theCompany and our report dated February 27, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting included in the accompanying management's report on internal control over financial reporting in Item 9A of the Form 10-K. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registeredwith the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules andregulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Cleveland, Ohio February 27, 2018
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HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
2017 2016 2015 (In millions, except per share data)Revenues $ 2,885.2 $ 2,569.7 $ 2,578.1Cost of sales 2,382.6 2,142.2 2,147.3Gross Profit 502.6 427.5 430.8Operating Expenses
Selling, general and administrative expenses 426.6 392.6 327.3Operating Profit 76.0 34.9 103.5Other (income) expense
Interest expense 14.6 6.7 4.7Income from unconsolidated affiliates (28.0) (7.1) (6.1)Other, net (4.4) (3.0) 0.4
(17.8) (3.4) (1.0)Income Before Income Taxes 93.8 38.3 104.5Income tax provision (benefit) 44.9 (4.0) 29.4Net Income 48.9 42.3 75.1Net (income) loss attributable to noncontrolling interest (0.3) 0.5 (0.4)
Net Income Attributable to Stockholders $ 48.6 $ 42.8 $ 74.7
Basic Earnings per Share Attributable to Stockholders $ 2.95 $ 2.61 $ 4.58
Diluted Earnings per Share Attributable to Stockholders $ 2.94 $ 2.61 $ 4.57
See Notes to Consolidated Financial Statements.
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HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31
2017 2016 2015 (In millions)Net Income $ 48.9 $ 42.3 $ 75.1Other comprehensive income (loss)
Foreign currency translation adjustment 33.5 (1.9) (49.7)Unrealized gain on available-for-sale securities, net of $0.5 tax expense in 2017 2.8 — —Current period cash flow hedging activity, net of $8.0 tax expense in 2017, net of $6.5tax benefit in 2016 and net of $6.4 tax benefit in 2015 6.6 (9.0) (4.7)Reclassification of hedging activities into earnings, net of $1.6 tax expense in 2017,net of $2.2 tax expense in 2016 and net of $6.0 tax expense in 2015 4.1 0.8 2.7Current period pension adjustment, net of $3.7 tax expense in 2017, net of $3.8 taxbenefit in 2016 and net of $1.5 tax benefit in 2015 13.1 (17.4) (3.4)Reclassification of pension into earnings, net of $1.0 tax expense in 2017, net of $0.7tax expense in 2016 and net of $0.9 tax expense in 2015 3.2 2.0 2.3
Comprehensive Income $ 112.2 $ 16.8 $ 22.3Other comprehensive income (loss) attributable to noncontrolling interests
Net (income) loss attributable to noncontrolling interests (0.3) 0.5 (0.4)Foreign currency translation adjustment attributable to noncontrolling interests (0.9) 2.2 —
Comprehensive Income Attributable to Stockholders $ 111.0 $ 19.5 $ 21.9
See Notes to Consolidated Financial Statements.
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HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
December 31
2017 2016 (In millions, except share data)ASSETS Current Assets
Cash and cash equivalents $ 220.1 $ 43.2
Accounts receivable, net of allowances of $3.7 in 2017 and $10.3 in 2016 453.0 375.3
Inventories, net 411.9 352.2
Prepaid expenses and other 46.4 39.3
Total Current Assets 1,131.4 810.0
Property, Plant and Equipment, Net 265.4 255.1
Intangible Assets 56.1 56.2
Goodwill 59.1 50.7
Deferred Income Taxes 16.6 43.9
Investment in Unconsolidated Affiliates 81.9 45.9
Other Non-current Assets 37.4 25.3
Total Assets $ 1,647.9 $ 1,287.1
LIABILITIES AND EQUITY Current Liabilities
Accounts payable $ 385.8 $ 242.4
Accounts payable, affiliates 18.1 16.5
Revolving credit facilities 6.1 79.0
Current maturities of long-term debt 68.4 50.0
Accrued payroll 51.7 43.7
Other current liabilities 162.3 144.9
Total Current Liabilities 692.4 576.5
Long-term Debt 216.2 82.2
Self-insurance Liabilities 33.5 19.7
Pension Obligations 11.1 37.2
Deferred Income Taxes 13.0 11.4
Other Long-term Liabilities 109.3 89.7
Total Liabilities 1,075.5 816.7
Stockholders’ Equity Common stock: Class A, par value $0.01 per share, 12,562,817 shares outstanding (2016 - 12,466,463 shares outstanding) 0.1 0.1Class B, par value $0.01 per share, convertible into Class A on a one-for-one basis, 3,899,503 shares outstanding (2016 -3,924,291 shares outstanding) 0.1 0.1
Capital in excess of par value 323.8 319.6
Treasury stock (31.5) (36.9)
Retained earnings 389.1 360.3
Accumulated other comprehensive loss (116.1) (179.4)
Total Stockholders’ Equity 565.5 463.8
Noncontrolling Interest 6.9 6.6
Total Equity 572.4 470.4
Total Liabilities and Equity $ 1,647.9 $ 1,287.1
See Notes to Consolidated Financial Statements.
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HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
2017 2016 2015 (In millions)Operating Activities
Net income $ 48.9 $ 42.3 $ 75.1
Adjustments to reconcile net income to net cash provided (used for) by operating activities: Depreciation and amortization 42.8 39.1 28.9
Amortization of deferred financing fees 1.4 1.1 1.2
Deferred income taxes 8.1 (7.4) (1.4)
Gain on sale of assets (0.3) (0.3) —
Stock-based compensation 8.8 4.9 2.9
Long-lived and intangible assets impairment charge 4.9 — —
Dividends from unconsolidated affiliates 2.8 5.1 2.5
Other non-current liabilities 4.8 (6.0) 3.8
Other (13.3) (15.1) 1.0
Working capital changes, excluding the effect of business acquisitions: Accounts receivable (44.0) (27.5) 6.2
Inventories (43.6) (14.9) 6.2
Other current assets (1.0) (3.2) (0.6)
Accounts payable 125.1 (53.8) (39.3)
Other liabilities 19.3 (13.2) 2.9
Net cash provided by (used for) operating activities 164.7 (48.9) 89.4
Investing Activities Expenditures for property, plant and equipment (41.0) (42.7) (46.6)
Proceeds from the sale of assets 1.3 13.7 14.4
Investments in equity securities (5.6) — —
Business acquisition, net of cash acquired (1.0) (116.1) 0.9
Purchase of noncontrolling interest (1.0) — —
Net cash used for investing activities (47.3) (145.1) (31.3)
Financing Activities Additions to long-term debt 265.6 40.1 46.4
Reductions of long-term debt (75.9) (56.5) (35.0)
Net additions (reductions) to revolving credit agreements (111.7) 115.4 —
Cash dividends paid (19.8) (19.2) (18.4)
Cash dividends paid to noncontrolling interest (0.3) (0.2) —
Financing fees paid (4.7) (1.7) —
Other (0.1) — (0.1)
Net cash provided by (used for) financing activities 53.1 77.9 (7.1)
Effect of exchange rate changes on cash 6.4 4.2 (7.3)
Cash and Cash Equivalents Increase (decrease) for the year 176.9 (111.9) 43.7
Balance at the beginning of the year 43.2 155.1 111.4
Balance at the end of the year $ 220.1 $ 43.2 $ 155.1
See Notes to Consolidated Financial Statements.
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HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF EQUITY
Accumulated Other Comprehensive Income (Loss)
Class ACommon
Stock
Class BCommon
StockTreasury
Stock
Capitalin Excess
of ParValue
RetainedEarnings
ForeignCurrency
TranslationAdjustment
DeferredGain on
AFSSecurities
DeferredGain
(Loss) onCash FlowHedging
PensionAdjustment
TotalStockholders'
EquityNoncontrolling
InterestTotal
Equity (In millions)
Balance, January 1, 2015 $ 0.1 $ 0.1 $ (49.1) $ 324.1 $ 280.4 $ (40.4) $ — $ (2.0) $ (58.7) $ 454.5 $ 1.5 $ 456.0
Stock-based compensation — — — 2.9 — — — — — 2.9 — 2.9Stock issued under stockcompensation plans — — 6.7 (6.7) — — — — — — — —
Purchase of treasury stock — — (0.1) — — — — — — (0.1) — (0.1)
Net income — — — — 74.7 — — — — 74.7 0.4 75.1Cash dividends oncommon stock — — — — (18.4) — — — — (18.4) — (18.4)Current period othercomprehensive income(loss) — — — — — (49.7) — (4.7) (3.4) (57.8) — (57.8)Reclassification adjustmentto net income — — — — — — — 2.7 2.3 5.0 — 5.0Balance, December 31,2015 $ 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 — — — 4.9 — — — — — 4.9 — 4.9Stock issued under stockcompensation plans — — 5.6 (5.6) — — — — — — — —
Net income — — — — 42.8 — — — — 42.8 (0.5) 42.3
Cash dividends — — — — (19.2) — — — — (19.2) (0.2) (19.4)Current period othercomprehensive income(loss) — — — — — (1.9) — (9.0) (17.4) (28.3) — (28.3)Reclassification adjustmentto net income — — — — — — — 0.8 2.0 2.8 — 2.8
Acquisition of Bolzoni — — — — — — — — — — 69.8 69.8Purchase of noncontrollinginterest — — — — — — — — — — (62.2) (62.2)Foreign currencytranslation onnoncontrolling interest — — — — — — — — — — (2.2) (2.2)Balance, December 31,2016 $ 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 — — — 8.8 — — — — — 8.8 — 8.8Stock issued under stockcompensation plans — — 5.4 (5.4) — — — — — — — —
Net income (loss) — — — — 48.6 — — — — 48.6 0.3 48.9
Cash dividends — — — — (19.8) — — — — (19.8) (0.3) (20.1)Current period othercomprehensive income(loss) — — — — — 33.5 2.8 6.6 13.1 56.0 — 56.0Reclassification adjustmentto net income — — — — — — — 4.1 3.2 7.3 — 7.3
Acquisition of business — — — — — — — — — — 0.3 0.3Purchase of noncontrollinginterest — — — 0.8 — — — — — 0.8 (0.9) (0.1)Foreign currencytranslation onnoncontrolling interest — — — — — — — — — — 0.9 0.9Balance, December 31,2017 $ 0.1 $ 0.1 $ (31.5) $ 323.8 $ 389.1 $ (58.5) $ 2.8 $ (1.5) $ (58.9) $ 565.5 $ 6.9 $ 572.4
See Notes to Consolidated Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShareandPercentageData)
NOTE 1—Principles of Consolidation and Nature of OperationsThe consolidated financial statements include the accounts of Hyster-Yale Materials Handling, Inc., a Delaware corporation, and the accounts of Hyster-Yale'swholly owned domestic and international subsidiaries and majority-owned joint ventures (collectively, "Hyster-Yale" or the "Company"). All intercompanyaccounts 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 acomprehensive line of lift trucks and aftermarket parts marketed globally primarily under the Hyster ® and Yale ® brand names, mainly to independent Hyster ® andYale ® retail dealerships. Lift trucks and component parts are manufactured in the United States, Northern Ireland, Mexico, the Netherlands, Italy, Vietnam, thePhilippines, Japan, Brazil and China. The sale of service parts represents approximately 13% of total revenues as reported for each of 2017 , 2016 and 2015 .
The Company operates Bolzoni S.p.A. ("Bolzoni"). Bolzoni is a leading worldwide producer of attachments, forks and lift tables marketed under the BolzoniAuramo ® and Meyer ® brand names. Bolzoni products are manufactured in Italy, China, Germany, Finland and the United States. Through the design, productionand 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 operates Nuvera Fuel Cells, LLC ("Nuvera"). Nuvera is an alternative-power technology company focused on fuel-cell stacks and engines. Nuveraalso 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 jointventure, are accounted for by the equity method. SN operates manufacturing facilities in Japan, the Philippines and Vietnam from which the Company purchasescertain components, service parts and lift trucks. Sumitomo Heavy Industries, Ltd. owns the remaining 50% interest in SN. Each stockholder of SN is entitled toappoint directors representing 50% of the vote of SN’s board of directors. All matters related to policies and programs of operation, manufacturing and salesactivities require mutual agreement between the Company and Sumitomo Heavy Industries, Ltd. prior to a vote of SN’s board of directors. HYGFS is a jointventure with Wells Fargo Financial Leasing, Inc. (“WF”), formed primarily for the purpose of providing financial services to independent Hyster ® and Yale ® lifttruck dealers and National Account customers in the United States. National Account customers are large customers with centralized purchasing andgeographically dispersed operations in multiple dealer territories. The Company’s percentage share of the net income or loss from these equity investments isreported on the line “Income from unconsolidated affiliates” in the “Other income (expense)” portion of the Consolidated Statements of Operations.
NOTE 2—Significant Accounting PoliciesUse of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to makeestimates and judgments. These estimates and judgments affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities(if any) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from thoseestimates.
Cash and Cash Equivalents: Cash and cash equivalents include cash in banks and highly liquid investments with original maturities of three months or less.
Accounts Receivable, Net of Allowances: Allowances are maintained against accounts receivable for doubtful accounts. Allowances for doubtful accounts aremaintained for estimated losses resulting from the inability of customers to make required payments. These allowances are based on both recent trends of certaincustomers estimated to be a greater credit risk as well as general trends of the entire customer pool. Accounts are written off against the allowance when it becomesevident collection will not occur.
Self-insurance Liabilities: The Company is generally self-insured for product liability, environmental liability and medical and workers’ compensation claims.For product liability, catastrophic insurance coverage is retained for potentially significant individual claims. An estimated provision for claims reported and forclaims incurred but not yet reported under the self-insurance programs is recorded and revised periodically based on industry trends, historical experience andmanagement judgment. In addition, industry trends are considered within management judgment for valuing claims. Changes in assumptions
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShareandPercentageData)
for such matters as legal judgments and settlements, legal defense costs, inflation rates, medical costs and actual experience could cause estimates to change in thenear term.
Revenue Recognition: Revenues are recognized based upon the terms of contracts with customers, which is generally when title transfers and risk of loss passesas customer orders are completed and shipped. For National Account customers, revenue is recognized upon customer acceptance.
Products generally are not sold with the right of return with the exception of a small percentage of aftermarket parts. Based on the Company’s historicalexperience, a portion of these aftermarket parts sold is estimated to be returned and, subject to certain terms and conditions, the Company will agree to accept. TheCompany records estimated reductions to revenues at the time of the sale based upon this historical experience and the limited right of return provided to theCompany’s dealers.
The Company also records estimated reductions to revenues for customer programs and incentive offerings, including special pricing agreements, pricecompetition, promotions and other volume-based incentives. Lift truck sales revenue is recorded net of estimated discounts. The estimated discount amount isbased upon historical trends for each lift truck model. In addition to standard discounts, dealers can also request additional discounts that allow them to offer priceconcessions to customers. From time to time, the Company offers special incentives to increase market share or dealer stock and offers certain customers volumerebates if a specified cumulative level of purchases is obtained. Additionally, the Company provides for the estimated cost of product warranties at the timerevenues are recognized.
Advertising Costs: Advertising costs are expensed as incurred. Total advertising expense was $10.8 million , $10.8 million and $11.7 million in 2017 , 2016 and2015 , respectively.
Product Development Costs: Expenses associated with the development of new products and changes to existing products are charged to expense as incurred.These costs amounted to $104.5 million , $107.0 million and $88.3 million in 2017 , 2016 and 2015 , respectively.
Shipping and Handling Costs: Shipping and handling costs billed to customers are recognized as revenue and shipping and handling costs incurred by theCompany are included on the line “Cost of sales” within the Consolidated Statements of Operations.
Taxes Collected from Customers and Remitted to Governmental Authorities: The Company collects various taxes and fees as an agent in connection withthe sale of products and remits these amounts to the respective taxing authorities. These taxes and fees have been presented on a net basis in the ConsolidatedStatements of Operations and are recorded as an asset or liability until received by or remitted to the respective taxing authority.
Foreign Currency: Assets and liabilities of non-U.S. operations are translated into U.S. dollars at the fiscal year-end exchange rate. The related translationadjustments are recorded as a separate component of equity, except for the Company’s Mexican operations. The U.S. dollar is considered the functional currencyfor the Company’s Mexican operations and, therefore, the effect of translating assets and liabilities from the Mexican peso to the U.S. dollar is recorded in resultsof operations. Revenues and expenses of all non-U.S. operations are translated using average monthly exchange rates prevailing during the year.
Reclassification: Certain amounts in the prior period’s audited consolidated financial statements have been reclassified to conform to the current period’spresentation.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShareandPercentageData)
The following table includes other significant accounting policies that are described in other notes to the consolidated financial statements, including the footnotenumber:
Significant Accounting Policy NoteReportable segments Business Segments (Note 3)
Stock-based compensation Common Stock and Earnings per Share (Note 5)
Income taxes Income Taxes (Note 6)
Derivatives and hedging activities Financial Instruments and Derivative Financial Instruments (Note 8)
Fair value of financial instruments Financial Instruments and Derivative Financial Instruments (Note 8) and Retirement Benefit Plans (Note 9)
Pension Retirement Benefit Plans (Note 9)
Inventories Inventories (Note 10)
Property, plant and equipment Property, Plant and Equipment, Net (Note 11)
Impairment or disposal of long-lived assets Property, Plant and Equipment, Net (Note 11)
Goodwill and intangible assets Goodwill and Intangible Assets (Note 12)
Contingencies Contingencies (Note 16)
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 amaterial effect on the Company's financial position, results of operations, cash flows or related disclosures.
Standard DescriptionASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement ofInventory
The guidance requires inventory to be measured at the lower of cost or net realizablevalue. The guidance defines net realizable value as the estimated selling price in theordinary course of business, less reasonably predictable costs of completion, disposal andtransportation.
ASU No. 2016-05, Derivatives and Hedging (Topic 815): Effect of DerivativeContract Novations on Existing Hedge Accounting Relationships
The guidance clarifies that a change in the counterparty to a derivative instrument thathas been designated as the hedging instrument does not, in and of itself, requirededesignation of that hedging relationship, provided that all other hedge accountingcriteria 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 equitymethod of accounting if an investment qualifies for use of the equity method as a resultof an increase in the level of ownership or degree of influence. In addition, the guidancerequires that the equity method investor add the cost of acquiring the additional interestin the investee to the current basis of the investor’s previously held interest and adopt theequity method of accounting as of the date the investment becomes qualified for equitymethod accounting.
ASU No. 2016-09, Stock Compensation (Topic 718): Improvements to EmployeeShare-Based Payment Accounting
The guidance simplifies several aspects of the accounting for employee share-basedpayment transactions, including the income tax consequences, classification of awards aseither equity or liabilities, and classification on the statement of cash flows.
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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 mattersASU No. 2014-09, Revenuefrom Contracts withCustomers (Topic 606)(Subsequent ASUs have beenissued in 2015, 2016 and 2017to update or clarify thisguidance)
The new guidance is based on the principle that revenue is recognizedto depict the transfer of goods or services to customers in an amountthat reflects the consideration to which the entity expects to beentitled in exchange for those goods or services. The new guidancealso requires additional disclosures about the nature, amount, timingand uncertainty of revenue and cash flows arising from customercontracts, including significant judgments and changes in judgmentsand assets recognized from costs incurred to obtain or fulfill acontract.
January 1, 2018
The Company's evaluation process of the newstandard included, but was not limited to,identifying contracts and revenue streams withinthe scope of the guidance, reviewing anddocumenting the accounting and identifying anddetermining the accounting for any relatedcontract costs and variable consideration. TheCompany has documented this evaluation andhas implemented processes and controls forcertain revenue streams as warranted by theguidance. The Company adopted the standardon January 1, 2018 using the modifiedretrospective approach and recorded acumulative adjustment to retained earnings foropen contracts as of January 1, 2018. Theadoption of the standard did not have a materialimpact on the Company's consolidated financialstatements. The Company will provide the newdisclosures required by the standard in theCompany's March 31, 2018 Quarterly Report onForm 10-Q.
ASU No. 2016-01, FinancialInstruments-Overall (Subtopic825-10): Recognition andMeasurement of FinancialAssets and FinancialLiabilities
The guidance requires equity investments previously accounted forunder the cost method of accounting to be measured at fair value andrecognized in net income. In addition, the guidance definesmeasurement and presentation of financial instruments.
January 1, 2018
The Company anticipates the adoption willincrease the volatility of other (income) expenseas a result of applying the guidance. TheCompany recorded a cumulative adjustment toretained earnings for deferred gains related toequity investments in third-parties as of January1, 2018 of $3.6 million. Subsequent changes inthe fair value of these investments will berecognized directly in earnings.
ASU No. 2016-15, Statementof Cash Flows (Topic 230):Classification of Certain CashReceipts and Cash Payments
The guidance clarifies the classification of certain types of cashreceipts and cash payments. In addition, the guidance provides for theapplication of the predominance principle when certain cash receiptsand payments have aspects of more than one class of cash flows.
January 1, 2018
The adoption of the guidance did not have amaterial effect on the Company's financialposition, results of operations, cash flows orrelated disclosures.
ASU No. 2016-16, IncomeTaxes (Topic 740)
The guidance allows for recognition of current and deferred incometaxes for an intra-entity transfer of an asset other than inventory. Theguidance allows for more accurate representation of the economics ofan intra-entity asset transfer which will require income taxconsequences of the transfer, including income taxes payable or paid.
January 1, 2018
The adoption of the guidance did not have amaterial effect on the Company's financialposition, results of operations, cash flows orrelated disclosures.
ASU No. 2016-18, Statementof Cash Flows (Topic 230):Restricted Cash
The guidance requires that a statement of cash flows explain thechange during the period in the total of cash, cash equivalents, andamounts generally described as restricted cash or restricted cashequivalents.
January 1, 2018
The adoption of the guidance did not have amaterial effect on the Company's financialposition, results of operations, cash flows orrelated disclosures.
ASU No. 2017-01, BusinessCombinations (Topic 805):Clarifying the Definition of aBusiness
The guidance clarifies the definition of a business to assist entities inevaluating whether transactions should be accounted for asacquisitions or disposals of businesses.
January 1, 2018
The adoption of the guidance did not have amaterial effect on the Company's financialposition, results of operations, cash flows orrelated disclosures.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShareandPercentageData)
Standard Description Required Date of
Adoption Effect on the financial statements or other
significant mattersASU 2017-05, Other Income –Gains and Losses from theDerecognition of NonfinancialAssets (Subtopic 610-20):Clarifying the Scope of AssetDerecognition
The guidance clarifies the scope and accounting of a financial assetthat meets the definition of an "in-substance nonfinancial asset" anddefines the term, "in-substance nonfinancial asset," in addition topartial sales of nonfinancial assets.
January 1, 2018
The adoption of the guidance did not have amaterial effect on the Company's financialposition, results of operations, cash flows orrelated disclosures.
ASU 2017-07, Compensation— Retirement Benefits (Topic715): Improving thePresentation of Net PeriodicPension Cost and Net PeriodicPostretirement
The guidance requires that an employer report the service costcomponent in the same line item or items as other compensation costsarising from services rendered by the pertinent employees during theperiod. The other components of net benefit cost are required to bepresented in the income statement separately from the service costcomponent and outside a subtotal of income from operations.
January 1, 2018
The Company will present the components ofnet benefit cost, other than service cost, in other(income) expense for its pension plans startingon January 1, 2018. Service cost for theCompany's pension plans will continue to bereported in operating profit.
ASU No. 2016-02, Leases(Topic 842)(Subsequent ASUshave been issued in 2017 toupdate or clarify this guidance)
The guidance requires lessees (with the exception of short-termleases) to recognize, at the commencement date, a lease liability,which is a lessee's obligation to make lease payments arising from alease, measured on a discounted basis; and a right-of-use asset, whichis an asset that represents the lessee’s right to use, or control the useof, a specified asset for the lease term.
January 1, 2019
The Company's evaluation process of the newstandard includes, but is not limited to,evaluating its current lease portfolio, identifyingrelevant contracts and attributes affected by thestandard and determining the requiredaccounting upon adoption. In addition, theCompany expects to implement new processesand controls regarding asset financingtransactions and financial reporting. TheCompany continues to evaluate its globalleasing portfolio and train relevant personnel. Inaddition, the Company has started abstraction ofkey attributes within lease contracts and beganto evaluate systems-related requirements for thenew standard. This evaluation will continuethroughout 2018. While the Company'sevaluation of the alternative methods ofadoption, practical expedients and the effect onits financial position, results of operations, cashflows and related disclosures is ongoing; theCompany anticipates the adoption willmaterially affect the consolidated balance sheetsand will require changes to the Company'ssystems and processes.
ASU 2017-12, Derivatives andHedging (Topic 815):Targeted Improvements toAccounting for HedgingActivities
The guidance makes targeted changes to the hedge accounting modelintended to facilitate financial reporting that more closely reflects anentity’s risk management activities and to simplify the application ofhedge accounting. Changes include expanding the types of riskmanagement strategies eligible for hedge accounting, easing thedocumentation and effectiveness assessment requirements, changinghow ineffectiveness is measured and changing the presentation anddisclosure requirements for hedge accounting activities.
January 1, 2019
The Company is currently evaluating theguidance and the effect on its financial position,results of operations, cash flows and relateddisclosures.
ASU 2018-02, Reclassificationof Certain Tax Effects fromAccumulated OtherComprehensive Income
The guidance provides an election to reclassify the stranded taxeffects resulting from the Tax Reform Act from OCI to retainedearnings. In addition, the guidance requires new disclosures regardingthe election to adopt and the manner in which tax effects remaining inOCI are released.
January 1, 2019
The Company is currently evaluating theguidance and the effect on its financial position,results of operations, cash flows and relateddisclosures.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShareandPercentageData)
Standard Description Required Date of
Adoption Effect on the financial statements or other
significant mattersASU No. 2016-13, FinancialInstruments-Credit Losses(Topic 326)
The guidance eliminates the probable initial recognition threshold andrequires an entity to reflect its current estimate of all expected creditlosses. The guidance also requires additional disclosures in certaincircumstances.
January 1, 2020
The Company is currently evaluating thealternative methods of adoption and the effecton its financial position, results of operations,cash flows and related disclosures.
ASU No. 2017-04, Intangibles- Goodwill and Other (Topic350): Simplifying the Test forGoodwill Impairment
The guidance removes the second step of the two-step test for themeasurement of goodwill impairment. The guidance allows for earlyadoption for impairment testing dates after January 1, 2017.
January 1, 2020
The Company is currently evaluating the timingof adoption and the effect on its currentimpairment testing process.
NOTE 3—Business SegmentsThe Company’s reportable segments for the lift truck business include the following three management units: the Americas, EMEA and JAPIC. Americas includesoperations in the United States, Canada, Mexico, Brazil, Latin America and its corporate headquarters. EMEA includes operations in Europe, the Middle East andAfrica. JAPIC includes operations in the Asia and Pacific regions including China, as well as the equity earnings of SN operations. Certain amounts are allocatedto these geographic management units and are included in the segment results presented below, including product development costs, corporate headquarter'sexpenses and certain information technology infrastructure costs. These allocations among geographic management units are determined by senior managementand not directly incurred by the geographic operations. In addition, other costs are incurred directly by these geographic management units based upon the locationof the manufacturing plant or sales units, including manufacturing variances, product liability, warranty and sales discounts, which may not be associated with thegeographic management unit of the ultimate end user sales location where revenues and margins are reported. Therefore, the reported results of each segment forthe 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 Companyreports the results of Nuvera as a separate segment.
On April 1, 2016, the Company acquired a majority interest in Bolzoni, which is also reported as a separate segment. Bolzoni's results of operations have beenincluded since the acquisition date. See Note 19 to the consolidated financial statements for additional information.
Financial information for each of the reportable segments is presented in the following table. See Note 1 for a discussion of the Company’s product lines. Refer toNote 2 for a description of the accounting policies of the reportable segments as well as a reference table for the remaining accounting policies described in theaccompanying footnotes.
2017 2016 2015
Revenues from external customers Americas $ 1,834.1 $ 1,675.7 $ 1,775.5EMEA 715.8 615.7 606.4JAPIC 173.9 169.5 193.7
Lift truck business 2,723.8 2,460.9 2,575.6Bolzoni 177.2 115.6 —Nuvera 3.7 2.5 2.5
Eliminations (19.5) (9.3) —
Total $ 2,885.2 $ 2,569.7 $ 2,578.1
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShareandPercentageData)
2017 2016 2015
Gross profit (loss) Americas $ 334.6 $ 287.9 $ 308.1EMEA 95.7 89.5 101.3JAPIC 20.2 17.1 23.2
Lift truck business 450.5 394.5 432.6Bolzoni 54.8 35.7 —Nuvera (2.1) (2.7) (1.8)
Eliminations (0.6) — —
Total $ 502.6 $ 427.5 $ 430.8
Selling, general and administrative expenses Americas $ 225.3 $ 214.2 $ 191.2EMEA 86.7 81.9 88.3JAPIC 26.3 23.8 25.0
Lift truck business 338.3 319.9 304.5Bolzoni 48.4 35.8 —Nuvera 39.9 36.9 22.8
Total $ 426.6 $ 392.6 $ 327.3
Operating profit (loss) Americas $ 109.3 $ 73.7 $ 116.9EMEA 9.0 7.6 13.0JAPIC (6.1) (6.7) (1.8)
Lift truck business 112.2 74.6 128.1Bolzoni 6.4 (0.1) —Nuvera (42.0) (39.6) (24.6)
Eliminations (0.6) — —
Total $ 76.0 $ 34.9 $ 103.5
Interest expense Americas $ 12.3 $ 5.4 $ 4.4EMEA 1.6 0.4 0.1JAPIC — 0.1 0.2
Lift truck business 13.9 5.9 4.7Bolzoni 0.8 0.8 —Nuvera — — —
Eliminations (0.1) — —
Total $ 14.6 $ 6.7 $ 4.7
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShareandPercentageData)
2017 2016 2015
Interest income Americas $ (3.3) $ (1.0) $ (1.0)EMEA — (0.5) (0.3)JAPIC (0.4) (0.5) (0.2)
Lift truck business (3.7) (2.0) (1.5)Bolzoni — — —Nuvera — — —
Eliminations 0.1 — —
Total $ (3.6) $ (2.0) $ (1.5)
Other (income) expense Americas $ (25.4) $ (5.7) $ (2.7)EMEA 1.1 1.0 1.0JAPIC (4.5) (3.2) (2.5)
Lift truck business (28.8) (7.9) (4.2)Bolzoni — (0.2) —Nuvera — — —
Total $ (28.8) $ (8.1) $ (4.2)
Income tax provision (benefit) Americas $ 57.3 $ 15.4 $ 39.9EMEA 0.9 (2.7) 1.6JAPIC 1.2 (0.5) (2.1)
Lift truck business 59.4 12.2 39.4Bolzoni 1.0 (0.4) —Nuvera (15.3) (15.8) (10.0)
Eliminations (0.2) — —
Total $ 44.9 $ (4.0) $ 29.4
Net income (loss) attributable to stockholders Americas $ 68.4 $ 59.6 $ 76.3EMEA 5.3 9.4 10.6JAPIC (1.9) (2.1) 2.4
Lift truck business 71.8 66.9 89.3Bolzoni 3.9 (0.3) —Nuvera (26.7) (23.8) (14.6)
Eliminations (0.4) — —
Total $ 48.6 $ 42.8 $ 74.7
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShareandPercentageData)
2017 2016 2015
Total assets Americas $ 1,146.0 $ 831.9 $ 680.7EMEA 615.5 462.3 412.0JAPIC 138.6 127.0 140.6Eliminations (304.6) (185.3) (130.9)
Lift truck business 1,595.5 1,235.9 1,102.4Bolzoni 239.8 206.9 —Nuvera 26.4 36.9 17.4
Eliminations (213.8) (192.6) (23.9)
Total $ 1,647.9 $ 1,287.1 $ 1,095.9
Depreciation and amortization Americas $ 19.9 $ 18.5 $ 16.2EMEA 7.1 6.5 5.9JAPIC 2.6 3.1 5.2
Lift truck business 29.6 28.1 27.3Bolzoni 11.2 9.5 —Nuvera 2.0 1.5 1.6
Total $ 42.8 $ 39.1 $ 28.9
Capital expenditures Americas $ 25.5 $ 27.6 $ 33.5EMEA 8.6 7.3 8.7JAPIC 1.2 1.6 1.7
Lift truck business 35.3 36.5 43.9Bolzoni 4.7 4.0 —Nuvera 1.0 2.2 2.7
Total $ 41.0 $ 42.7 $ 46.6
Cash and cash equivalents Americas $ 191.2 $ 10.4 $ 54.2EMEA 11.6 14.4 82.2JAPIC 6.6 8.2 18.5
Lift truck business 209.4 33.0 154.9Bolzoni 10.7 10.2 —Nuvera — — 0.2
Total $ 220.1 $ 43.2 $ 155.1
Data by Geographic Region
No single country outside of the United States comprised 10% or more of revenues from unaffiliated customers. The “Other” category below includes Canada,Mexico, South America and the Asia and Pacific regions. In addition, no single customer comprised 10% or more of revenues from unaffiliated customers.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShareandPercentageData)
UnitedStates
Europe, Africa andMiddle East Other Consolidated
2017 Revenues from unaffiliated customers, based on the customers’ location $ 1,588.8 $ 825.8 $ 470.6 $ 2,885.2
Long-lived tangible assets $ 181.6 $ 82.3 $ 83.4 $ 347.3
2016 Revenues from unaffiliated customers, based on the customers’ location $ 1,437.6 $ 701.9 $ 430.2 $ 2,569.7
Long-lived tangible assets $ 159.1 $ 59.8 $ 82.1 $ 301.0
2015 Revenues from unaffiliated customers, based on the customers’ location $ 1,575.2 $ 606.5 $ 396.4 $ 2,578.1
Long-lived tangible assets $ 126.2 $ 39.4 $ 61.8 $ 227.4
NOTE 4—Quarterly Results of Operations (Unaudited)
A summary of the unaudited results of operations for the year ended December 31 is as follows:
2017
First
Quarter SecondQuarter
ThirdQuarter
FourthQuarter
Revenues $ 713.1 $ 685.5 $ 691.1 $ 795.5Gross profit $ 126.1 $ 121.7 $ 121.4 $ 133.4Operating profit $ 23.4 $ 18.3 $ 17.9 $ 16.4Net income (loss) $ 18.1 $ 16.4 $ 16.7 $ (2.3)Net income (loss) attributable to stockholders $ 18.1 $ 16.4 $ 16.5 $ (2.4)
Basic earnings (loss) per share $ 1.10 $ 1.00 $ 1.00 $ (0.15)
Diluted earnings (loss) per share $ 1.10 $ 0.99 $ 1.00 $ (0.15)
Net income (loss) attributable to stockholders for the fourth quarter of 2017 include the impacts of the Tax Cuts and Jobs Act, which was signed into lawDecember 22, 2017. See Note 6 to the consolidated financial statements for further discussion.
2016
First
Quarter SecondQuarter
ThirdQuarter
FourthQuarter
Revenues $ 604.2 $ 645.6 $ 629.3 $ 690.6Gross profit $ 97.9 $ 114.0 $ 104.6 $ 111.0Operating profit $ 9.7 $ 11.4 $ 5.4 $ 8.4Net income $ 9.9 $ 8.3 $ 12.0 $ 12.1Net income attributable to stockholders $ 10.0 $ 8.3 $ 12.3 $ 12.2
Basic earnings per share $ 0.61 $ 0.51 $ 0.75 $ 0.74
Diluted earnings per share $ 0.61 $ 0.51 $ 0.75 $ 0.74
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShareandPercentageData)
NOTE 5—Common Stock and Earnings per Share
The Company's Class A common stock is traded on the New York Stock Exchange under the ticker symbol “HY.” Because of transfer restrictions on Class Bcommon stock, no trading market has developed, or is expected to develop, for the Company's Class B common stock. The Class B common stock is convertibleinto Class A common stock on a one-for-one basis at any time at the request of the holder. The Company's Class A common stock and Class B common stock havethe same cash dividend rights per share. The Class A common stock has one vote per share and the Class B common stock has ten votes per share. The totalnumber of authorized shares of Class A common stock and Class B common stock at December 31, 2017 was 125 million shares and 35 million shares,respectively. Treasury shares of Class A common stock totaling 425,787 and 497,353 at December 31, 2017 and 2016 , respectively, have been deducted fromshares outstanding.
Stock Compensation: The Company has stock compensation plans for certain employees in the U.S. that allow the grant of shares of Class A common stock,subject to restrictions, as a means of retaining and rewarding them for long-term performance and to increase ownership in the Company. Shares awarded under theplans are fully vested and entitle the stockholder to all rights of common stock ownership except that shares may not be assigned, pledged or otherwise transferredduring the restriction period. In general, the restriction period ends at the earliest of (i) five years after the participant's retirement date, (ii) ten years from the awarddate, or (iii) the participant's death or permanent disability. Pursuant to the plans, the Company issued 89,502 , 56,002 and 49,185 shares related to the years endedDecember 31, 2017 , 2016 and 2015 , respectively. After the issuance of these shares, there were 407,890 shares of Class A common stock available for issuanceunder these plans. Compensation expense related to these share awards was $7.6 million ( $6.0 million net of tax), $3.8 million ( $2.3 million net of tax) and $1.9million ( $1.2 million net of tax) for the years ended December 31, 2017 , 2016 and 2015 , respectively. Compensation expense at the grant date represents fairvalue based on the market price of the shares of Class A common stock. The Company also has a stock compensation plan for non-employee directors of theCompany under which a portion of the non-employee directors’ annual retainer is paid in restricted shares of Class A common stock. For the year endedDecember 31, 2017 , $110,000 of each non-employee director's retainer of $166,000 was paid in restricted shares of Class A common stock. For the year endedDecember 31, 2016 , $102,000 of $158,000 was paid in restricted shares of Class A common stock. For the year ended December 31, 2015 , $94,000 of $150,000was paid in restricted shares of Class A common stock. Shares awarded under the plan are fully vested and entitle the stockholder to all rights of common stockownership except that shares may not be assigned, pledged or otherwise transferred during the restriction period. In general, the restriction period ends at theearliest of (i) ten years from the award date, (ii) the date of the director's death or permanent disability, (iii) five years (or earlier with the approval of the Board ofDirectors) after the director's date of retirement from the Board of Directors, or (iv) the date on which the director has both retired from the Board of Directors andreached 70 years of age. Pursuant to this plan, the Company issued 14,480 , 15,426 and 13,683 shares related to the years ended December 31, 2017 , 2016 and2015 , respectively. In addition to the mandatory retainer fee received in restricted stock, directors may elect to receive shares of Class A common stock in lieu ofcash for up to 100% of the balance of their annual retainer, meeting attendance fees, committee retainer and any committee chairman's fees. These voluntary sharesare not subject to any restrictions. Total shares issued under voluntary elections were 2,006 , 2,352 and 2,150 in 2017 , 2016 and 2015 , respectively. After theissuance of these shares, there were 27,117 shares of Class A common stock available for issuance under this directors' plan. Compensation expense related tothese awards was $1.2 million ( $0.9 million net of tax), $1.1 million ( $0.7 million net of tax) and $1.0 million ( $0.6 million net of tax) for the years endedDecember 31, 2017 , 2016 and 2015 , respectively. Compensation expense at the grant date represents fair value based on the market price of the shares of Class Acommon stock.Earnings per Share: For purposes of calculating earnings per share, no adjustments have been made to the reported amounts of net income attributable tostockholders. In addition, basic and diluted earnings per share for Class A common stock are the same as Class B common stock. The weighted average number ofshares of Class A common stock and Class B common stock outstanding used to calculate basic and diluted earnings per share were as follows:
2017 2016 2015
Basic weighted average shares outstanding 16.447 16.376 16.307Dilutive effect of restricted stock awards 0.067 0.051 0.048
Diluted weighted average shares outstanding 16.514 16.427 16.355
Basic earnings per share $ 2.95 $ 2.61 $ 4.58Diluted earnings per share $ 2.94 $ 2.61 $ 4.57Cash dividends per share $ 1.2025 $ 1.1700 $ 1.1300
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NOTE 6—Income Taxes
The components of income before income taxes and provision for income taxes for the years ended December 31 are as follows:
2017 2016 2015
Income before income taxes U.S. $ 48.3 $ (1.2) $ 71.2Non-U.S. 45.5 39.5 33.3
$ 93.8 $ 38.3 $ 104.5
Income tax provision (benefit) Current tax provision:
Federal $ 28.3 $ (1.3) $ 22.1State 1.4 (0.3) 3.4Non-U.S. 7.1 5.0 5.3Total current $ 36.8 $ 3.4 $ 30.8
Deferred tax provision (benefit): Federal $ 10.7 $ (5.8) $ (0.4)State (0.7) 0.8 1.2Non-U.S. (1.9) (2.4) (2.2)Total deferred $ 8.1 $ (7.4) $ (1.4)
$ 44.9 $ (4.0) $ 29.4
The Company made income tax payments of $14.0 million , $19.3 million and $32.7 million during 2017 , 2016 and 2015 , respectively. The Company receivedincome tax refunds of $2.2 million , $11.1 million and $0.2 million during 2017 , 2016 and 2015 , respectively.
A reconciliation of the federal statutory and reported income tax rate for the year ended December 31 is as follows:
2017 2016 2015
Income before income taxes $ 93.8 $ 38.3 $ 104.5
Statutory taxes at 35.0% $ 32.8 $ 13.4 $ 36.6Tax Reform Act 38.2 — —State income taxes 0.2 (0.6) 4.1Valuation allowance 0.1 (0.2) 5.9Sale of non-U.S. investment (9.1) (1.9) (3.7)Equity interest earnings (8.1) (2.2) (1.9)Non-U.S. rate differences (7.2) (9.6) (10.5)R&D and other federal credits (1.8) (1.8) (1.7)Unremitted non-U.S. earnings (0.4) (3.9) 0.1Tax controversy resolution — 2.1 (0.2)Other 0.2 0.7 0.7
Income tax provision (benefit) $ 44.9 $ (4.0) $ 29.4
Reported income tax rate 47.9% n.m. 28.1%n.m. - not meaningful
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Tax Reform Act”). The Tax Reform Act significantlyrevised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018,repealing the deduction for domestic production activities, allowing the immediate expensing of certain qualified capital expenditures, implementing a territorialtax system and imposing a one-time transition tax on certain unremitted earnings of non-U.S. subsidiaries. As a result of the Tax Reform Act,
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the Company recorded the provisional tax effects of $38.2 million , comprised of $33.1 million of tax expense due to the transition tax on the unremitted earningsand profits of non-U.S. subsidiaries and $5.1 million of tax expense due to the effects on the Company’s deferred tax assets and liabilities. The final amountsrecorded in subsequent financial statements may materially differ from these provisional amounts due to among other things, additional analysis, changes ininterpretations of the Tax Reform Act including interpretations by state and local taxing authorities and related assumptions of the Company, and additionalregulatory guidance that may be issued which could potentially effect the measurement of these provisional tax amounts. The provisional amounts are expected tobe finalized when the U.S. corporate income tax return for 2017 is filed in 2018, but in no event later than one year from the enactment date.
The one-time transition tax is based on the post-1986 unremitted earnings and profits of non-U.S. subsidiaries which have been previously deferred from U.S.income taxes including such earnings through the measurement date as determined by the Tax Reform Act. The amount of transition tax also depends on theamount of earnings and profits held in cash or other specified assets. The Company had an estimated $310 million of undistributed non-U.S. earnings and profitssubject to the transition tax and recognized a provisional $33.1 million of income tax expense in the fourth quarter of 2017. After the utilization of existing taxcredits, the Company expects to pay cash taxes, including state income taxes, of an estimated $22.5 million with respect to the transition tax payable over eightyears. These amounts may change upon the issuance of additional regulatory guidance or when the Company finalizes its calculation of earnings and profits,including the amounts held in cash or other specified assets and its calculation of available foreign tax credits. The Company intends that future distributions willbe from earnings which would otherwise qualify for the one hundred percent dividends received deduction provided in the Tax Reform Act and earnings whichwould not result in any significant foreign taxes. As a result, no additional income taxes have been provided for any undistributed foreign earnings not subject tothe transition tax, nor any additional outside basis differences inherent in these entities, as these amounts continue to be indefinitely reinvested in non-U.S.operations. It is not practicable to estimate the additional income taxes and applicable withholding taxes that would be payable on the remittance of suchundistributed foreign earnings.
While the Tax Reform Act provides for a territorial system, beginning in 2018, it includes new anti-deferral and anti-base erosion provisions, the global intangiblelow-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions.
The GILTI provisions require the Company to include in its U.S. income tax return non-U.S. earnings in excess of an allowable return on the Company’s non-U.S.subsidiary’s tangible assets. The Company expects that it will be subject to incremental U.S. tax on GILTI beginning in 2018 due to expense allocations requiredby the U.S foreign tax credit rules and various adjustments required to determine tangible assets provided in the Tax Reform Act. The Company has elected toaccount for GILTI tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI as of December 31, 2017.
The BEAT provisions in the Tax Reform Act create a minimum tax where a lower tax rate is applied to pre-tax income without the benefit of certain base-erosionpayments made to related non-U.S. corporations. The Company will only be taxed under this regime if such tax exceeds the regular corporate tax. The Companycontinues to evaluate whether it will be subject to BEAT provisions.
During 2017, the Company recognized a tax benefit of $9.1 million and tax expense of $1.4 million for unrecognized tax benefits, from an internal sale of asubsidiary between consolidated companies resulting in the repatriation of non-U.S. accumulated earnings taxed at higher rates. In addition, the Company settledvarious federal obligations in Brazil through the utilization of its federal net operating loss carryforwards for which a valuation allowance was previously provided.As a result of the utilization of the underlying deferred tax assets, the Company released the associated valuation allowance previously provided of $4.7 million .This was partly offset by a $1.6 million valuation allowance provided against deferred tax assets in China where the Company has determined that such deferredtax assets no longer meet the more likely than not standard for realization.
During 2016, the Company received a notice from the Italian Tax Authority approving the transfer of certain tax losses as part of an internal restructuring. As aresult, the Company believes it is more likely than not that deferred tax assets for such losses of approximately $3.2 million will be realized in the foreseeablefuture, and has released the valuation allowance previously provided.
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Other items during 2016 include a tax benefit of $4.0 million . As a result of the Bolzoni acquisition, the Company changed its previous reinvestment assertion;and consequently, all of the earnings of its European operations are now considered permanently reinvested and the previously provided deferred tax liability is nolonger required. In addition, the Company recognized tax expense of $1.6 million related to non-deductible acquisition expenses and tax expense of $2.1 millionfor net additions for unrecognized tax benefits.
The Company continually evaluates its deferred tax assets to determine if a valuation allowance is required. A valuation allowance is required where realization isdetermined to no longer meet the "more likely than not" standard. During 2014 and 2015, a significant downturn was experienced in the Company's Brazilianoperations. This significant decrease in operations and actions taken by management to reduce its manufacturing activity to more appropriate levels, coupled withthe continued low expectations in the near term for the Brazilian lift truck market and the continuing devaluation of the Brazilian real, caused the Company in 2015to forecast a three-year cumulative loss for its Brazilian operations. Although the Company projects earnings over the longer term for its Brazilian operations, suchlonger-term forecasts are not sufficient positive evidence to support the future utilization of deferred tax assets when a three-year loss is determined. Accordingly,in 2015, the Company recorded a valuation allowance adjustment of $1.9 million against its deferred tax assets in Brazil. The Company also recognized $2.7million , $2.4 million and $5.6 million in 2017 , 2016 and 2015 , respectively, of valuation allowances related to pre-tax losses in Brazil and $0.6 million in 2017due to pre-tax losses in China in its effective tax rate.
A detailed summary of the total deferred tax assets and liabilities in the Consolidated Balance Sheets resulting from differences in the book and tax basis of assetsand liabilities follows:
December 31
2017 2016
Deferred tax assets Tax attribute carryforwards $ 28.3 $ 31.6Product warranties 9.1 13.7Accrued expenses and reserves 8.3 23.2Accrued product liability 6.5 9.3Other employee benefits 3.2 5.2Accrued pension benefits 2.2 8.2Other — 2.2
Total deferred tax assets 57.6 93.4Less: Valuation allowance 31.0 29.3
26.6 64.1Deferred tax liabilities
Depreciation and amortization 22.2 25.4Inventories 0.5 5.8Unremitted earnings — 0.4Other 0.3 —
Total deferred tax liabilities 23.0 31.6
Net deferred tax asset $ 3.6 $ 32.5
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The following table summarizes the tax carryforwards and associated carryforward periods and related valuation allowances where the Company has determinedthat realization is uncertain:
December 31, 2017
Net deferred tax
asset Valuationallowance
Carryforwardsexpire during:
Non-U.S. net operating loss $ 21.9 $ 13.9 2018 - IndefiniteNon-U.S. capital losses 6.5 6.5 2018 - IndefiniteState net operating losses and credits 3.8 2.4 2018 - 2036Less: Unrecognized tax benefits (3.9) —
Total $ 28.3 $ 22.8
December 31, 2016
Net deferred tax
asset Valuationallowance
Carryforwardsexpire during:
Non-U.S. net operating loss $ 25.2 $ 15.7 2017 - IndefiniteNon-U.S. capital losses 5.9 5.9 2017 - IndefiniteState net operating losses and credits 2.8 2.0 2017 - 2031U.S. foreign tax credit 2.5 — 2017 - 2026U.S. net operating loss 0.8 — 2017 - 2036Less: Unrecognized tax benefits (5.6) —
Total $ 31.6 $ 23.6
The establishment of a valuation allowance does not have an impact on cash, nor does such an allowance preclude the Company from using its loss carryforwardsor other deferred tax assets in future periods. The tax net operating losses attributable to Brazil and Australia comprise a substantial portion of the deferred taxassets and do not expire under local law.
During 2017 and 2016 , the net valuation allowance provided against certain deferred tax assets increased by $1.7 million and $0.7 million , respectively. Thechange in the total valuation allowance in 2017 and 2016 included a net increase in tax expense of $0.1 million and a net decrease of $0.2 million , respectively, anet change in the overall U.S. dollar value of valuation allowances previously recorded in non-U.S. currencies and amounts recorded directly in equity of a netincrease of $1.1 million and $0.9 million in 2017 and 2016 , respectively. Additionally in 2017, the change in valuation allowance included a net increase of $0.5million due to the remeasurement of deferred taxes as a result of the Tax Reform Act.
Based upon a review of historical earnings and trends, forecasted earnings and the relevant expiration of carryforwards, the Company believes the valuationallowances provided are appropriate. At December 31, 2017 , the Company had gross net operating loss carryforwards in U.S. state jurisdictions of $19.6 millionand non-U.S. jurisdictions of $75.7 million .
The following is a reconciliation of total gross unrecognized tax benefits, defined as the aggregate tax effect of differences between tax return positions and thebenefits recognized in the consolidated financial statements for the years ended December 31, 2017 , 2016 and 2015 . Approximately $10.9 million , $11.1 millionand $3.8 million of these amounts as of December 31, 2017 , 2016 and 2015 , respectively, relate to permanent items that, if recognized, would impact the reportedincome tax rate. This amount differs from gross unrecognized tax benefits presented in the table below for December 31, 2016 due to the increase in U.S. federalincome taxes which would occur upon the recognition of the state tax benefits included herein.
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2017 2016 2015
Balance at January 1 $ 11.2 $ 3.8 $ 4.3Additions (reductions) for business acquisitions (1.0) 6.3 —Additions based on tax positions related to the current year 2.7 2.8 0.7Additions (reductions) for tax positions of prior years (1.5) 0.1 0.1Reductions due to settlements with taxing authorities and the lapse of the applicable statute oflimitations (1.2) (0.9) (1.1)Other changes in unrecognized tax benefits including foreign currency translation adjustments 0.7 (0.9) (0.2)
Balance at December 31 $ 10.9 $ 11.2 $ 3.8
The Company records interest and penalties on uncertain tax positions as a component of the income tax provision. The Company recorded a net decrease of $0.1million during 2017 and a net increase of $0.1 million during 2016 and 2015 in interest and penalties. In addition, during 2016, the balance of accrued interest andpenalty was increased for uncertain tax positions related to business acquisitions by $0.5 million . The total amount of interest and penalties accrued was $0.8million , $0.9 million and $0.3 million as of December 31, 2017 , 2016 and 2015 , respectively.
The Company expects the amount of unrecognized tax benefits will change within the next twelve months; however, the change in unrecognized tax benefits whichis reasonably possible within the next twelve months, is not expected to have a significant effect on the Company's financial position or results of operations. It isreasonably possible the Company will record unrecognized tax benefits within the next twelve months in the range of zero to $0.5 million resulting from thepossible expiration of certain statutes of limitation and settlement of audits. If recognized, the previously unrecognized tax benefits will be recorded as discrete taxbenefits in the interim period in which the items are effectively settled.
The tax returns of the Company and its non-U.S. subsidiaries are routinely examined by various taxing authorities. The Company has not been informed of anymaterial assessment for which an accrual has not been previously provided and the Company would vigorously contest any material assessment. Managementbelieves any potential adjustment would not materially affect the Company's financial condition or results of operations.
In general, the Company operates in taxing jurisdictions that provide a statute of limitations period ranging from three to five years for the taxing authorities toreview the applicable tax filings. The examination of U.S. federal tax returns for all years prior to 2014 have been settled with the Internal Revenue Service orotherwise have essentially closed under the applicable statute of limitations. However, the Company has elected to voluntarily extend the statute of limitations forU.S. federal tax return for 2012 at the request of its prior parent company such that attributes may be adjusted in limited circumstances. The Company is routinelyunder examination in various state and non-U.S. jurisdictions and in most cases the statute of limitations has not been extended. The Company believes theseexaminations are routine in nature and are not expected to result in any material tax assessments.
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NOTE 7—Reclassifications from OCI
The following table summarizes reclassifications out of accumulated other comprehensive income (loss) ("OCI") for each year ended December 31 as recorded inthe Consolidated Statements of Operations:
Details about OCI Components Amount Reclassified from OCI Affected Line Item in the Statement Where
Net Income Is Presented
2017 2016 2015 Gain (loss) on cash flow hedges:
Foreign exchange contracts $ (5.7) $ (3.0) $ (8.7) Cost of salesTotal before tax (5.7) (3.0) (8.7) Income before income taxesTax expense 1.6 2.2 6.0 Income tax provision (benefit)
Net of tax $ (4.1) $ (0.8) $ (2.7) Net income
Amortization of defined benefit pension items: Actuarial loss $ (4.5) $ (3.0) $ (3.5) (a)Prior service (cost) credit 0.3 0.3 0.3 (a)
Total before tax (4.2) (2.7) (3.2) Income before income taxesTax expense 1.0 0.7 0.9 Income tax provision (benefit)
Net of tax $ (3.2) $ (2.0) $ (2.3) Net income
Total reclassifications for the period $ (7.3) $ (2.8) $ (5.0) (a) These OCI components are included in the computation of net pension cost (see Note 9 for additional details).
NOTE 8—Financial Instruments and Derivative Financial InstrumentsThe carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturities of theseinstruments. The fair values of revolving credit agreements and long-term debt, excluding capital leases, were determined using current rates offered for similarobligations taking into account company credit risk. This valuation methodology is Level 2 as defined in the fair value hierarchy. At December 31, 2017 , the totalcarrying value and total fair value of revolving credit agreements and long-term debt, excluding capital leases, was $270.9 million and $272.2 million ,respectively. At December 31, 2016 , the total carrying value and total fair value of revolving credit agreements and long-term debt, excluding capital leases, was$184.5 million .
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of accounts receivable and derivatives. The largenumber of customers comprising the Company’s customer base and their dispersion across many different industries and geographies mitigates concentration ofcredit risk on accounts receivable. To further reduce credit risk associated with accounts receivable, the Company performs periodic credit evaluations of itscustomers, but does not generally require advance payments or collateral. The Company enters into derivative contracts with high-quality financial institutions andlimits the amount of credit exposure to any one institution.
Derivative Financial Instruments
Financial instruments held by the Company include cash and cash equivalents, accounts receivable, accounts payable, revolving credit agreements, long-term debt,interest rate swap agreements and forward foreign currency exchange contracts. The Company does not hold or issue financial instruments or derivative financialinstruments for trading purposes.
The Company uses forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies. These contractshedge firm commitments and forecasted transactions relating to cash flows associated with sales and purchases denominated in non-functional currencies. TheCompany offsets fair value amounts related to foreign currency exchange contracts executed with the same counterparty. Changes in the fair value of forwardforeign currency exchange contracts that are effective as hedges are recorded in OCI. Deferred gains or losses are reclassified from OCI to the ConsolidatedStatements 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. Theineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and is also generally recognized in cost of sales.
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Certain of the Company's forward foreign currency contracts were designated as net investment hedges of the Company's net investment in its foreign subsidiaries.For derivative instruments that were designated and qualified as a hedge of a net investment in foreign currency, the gain or loss was reported in othercomprehensive income as part of the cumulative translation adjustment to the extent it is effective. The Company utilizes the forward-rate method of assessinghedge effectiveness. Any ineffective portion of net investment hedges would be recognized in the Consolidated Statements of Operations in the same period as thechange.
The Company periodically enters into foreign currency exchange contracts that do not meet the criteria for hedge accounting. These derivatives are used to reducethe 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.
During 2017, the Company entered into cross-currency swaps which hedge the variability of expected future cash flows that are attributable to foreign currencyrisk of certain intercompany loans. These agreements include initial and final exchanges of principal and associated interest payments from fixed euro denominatedto 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 lossesare reclassified from OCI to the Consolidated Statements of Operations in the same period as the gains or losses from the underlying transactions are recorded andare generally recognized in other (income) expense and interest expense. The ineffective portion of derivatives that are classified as hedges is immediatelyrecognized in earnings and is 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 rateof 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 interestrate 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 swapagreements that are effective as hedges are recorded in OCI. Deferred gains or losses are reclassified from OCI to the Consolidated Statements of Operations in thesame period as the gains or losses from the underlying transactions are recorded and are generally recognized in interest expense. The ineffective portion ofderivatives that are classified as hedges is immediately recognized in earnings in other (income) expense.
Cash flows from hedging activities are reported in the Consolidated Statements of Cash Flows in the same classification as the hedged item, generally as acomponent 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 inthe fair value hierarchy. The Company uses a present value technique that incorporates yield curves and foreign currency spot rates to value its derivatives and alsoincorporates 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 a total notional amount of $860.2 million at December 31,2017 , primarily denominated in euros, U.S. dollars, Japanese yen, British pounds, Swedish kroner, Mexican pesos and Australian dollars. The Company heldforward 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, Swedish kroner, British pounds and Mexican pesos. The fair value of these contracts approximated a net liability of $2.1 million and $22.7 million atDecember 31, 2017 and 2016 , respectively.
For the years ended December 31, 2017 and 2016 , there was no material ineffectiveness of forward foreign currency exchange contracts that qualify for hedgeaccounting. Forward foreign currency exchange contracts that qualify for hedge accounting are generally used to hedge transactions expected to occur within thenext 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 December 31, 2017 , $1.0 million of the amount of net deferred loss included in OCI at December 31, 2017 is expected to bereclassified as a gain into the Consolidated Statements 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 borrowings and one and three-month LIBORborrowings. The following table summarizes the notional amounts, related rates, excluding spreads, and remaining terms of interest rate swap agreements atDecember 31, 2017 and 2016 :
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Notional Amount Average Fixed Rate
December 31 December 31 December 31 December 31
2017 2016 2017 2016 Term at December 31, 2017
$ 100.0 $ 100.0 1.47% 1.47% Extending to December 201856.5 — 1.94% —% November 2017 to November 202283.5 — 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 wasa net asset of $0.8 million and a net liability $0.3 million at December 31, 2017 and 2016 , respectively. The mark-to-market effect of interest rate swap agreementsthat are considered effective as hedges has been included in OCI. Based on market valuations at December 31, 2017 , $0.1 million of the amount included in OCI isexpected to be reclassified as expense in the Consolidated Statement of Operations over the next twelve months, as cash flow payments are made in accordancewith the interest rate swap agreements.The following table summarizes the fair value of derivative instruments at December 31 as recorded in the Consolidated Balance Sheets:
Asset Derivatives Liability Derivatives
Balance sheet location 2017 2016 Balance sheet location 2017 2016Derivatives designated as hedging instruments Cash Flow Hedges Interest rate swap agreements
Current Prepaid expenses and other $ — $ — Prepaid expenses and other $ 0.1 $ —
Long-term Other non-current assets 0.7 — Other non-current assets — —
Other long-term liabilities — — Other long-term liabilities 0.1 —
Foreign currency exchange contracts Current Prepaid expenses and other 8.3 — Prepaid expenses and other 4.0 —
Other current liabilities 2.8 3.7 Other current liabilities 4.3 14.0Long-Term Other non-current assets 3.9 — Other non-current assets 1.3 —
Other long-term liabilities 0.5 — Other long-term liabilities 7.7 10.1Total derivatives designated as hedging instruments $ 16.2 $ 3.7 $ 17.5 $ 24.1
Derivatives not designated as hedging instruments Cash Flow Hedges Interest rate swap agreements
Current Prepaid expenses and other $ 0.4 $ — Prepaid expenses and other $ — $ —
Other current liabilities — — Other current liabilities — 0.3
Long-term Other non-current assets — 0.2 Other non-current assets — —
Other long-term liabilities — — Other long-term liabilities 0.1 0.2
Foreign currency exchange contracts Current Prepaid expenses and other 0.8 — Prepaid expenses and other 0.4 —
Other current liabilities 0.1 1.6 Other current liabilities 0.8 3.9Total derivatives not designated as hedging instruments $ 1.3 $ 1.8 $ 1.3 $ 4.4
Total derivatives $ 17.5 $ 5.5 $ 18.8 $ 28.5
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The following table summarizes the offsetting of the fair value of derivative instruments on a gross basis by counterparty at December 31, 2017 and 2016 asrecorded in the Consolidated Balance Sheets:
Derivative Assets as of December 31, 2017 Derivative Liabilities as of December 31, 2017
Gross Amountsof Recognized
Assets
GrossAmounts
Offset Net Amounts
Presented Net Amount
Gross Amountsof Recognized
Liabilities
GrossAmounts
Offset Net Amounts
Presented Net Amount
Cash Flow Hedges
Interest rate swap agreements $ 1.0 $ (0.2) $ 0.8 $ 0.8 $ 0.2 $ (0.2) $ — $ —Foreign currency exchangecontracts 7.3 (7.3) — — 9.4 (7.3) 2.1 2.1
Total derivatives $ 8.3 $ (7.5) $ 0.8 $ 0.8 $ 9.6 $ (7.5) $ 2.1 $ 2.1
Derivative Assets as of December 31, 2016 Derivative Liabilities as of December 31, 2016
Gross Amountsof Recognized
Assets Gross Amounts
Offset Net AmountsPresented Net Amount
Gross Amounts ofRecognizedLiabilities
Gross AmountsOffset
Net AmountsPresented Net Amount
Cash Flow Hedges
Interest rate swap agreements $ 0.2 $ (0.2) $ — $ — $ 0.5 $ (0.2) $ 0.3 $ 0.3Foreign currency exchangecontracts — — — — 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 for each year ended December 31 as recorded in the Consolidated Statements ofOperations:
Derivatives in Cash FlowHedging Relationships
Amount of Gain or (Loss)Recognized in OCI on
Derivative (Effective Portion)
Location of Gain or(Loss) Reclassifiedfrom OCI into
Income (EffectivePortion)
Amount of Gain or (Loss)Reclassified from OCI
into Income (Effective Portion)
Location of Gain or(Loss) Recognizedin Income onDerivative(Ineffective
Portion and AmountExcluded fromEffectivenessTesting)
Amount of Gain or (Loss) Recognizedin Income on Derivative (IneffectivePortion and Amount Excluded from
Effectiveness Testing)
2017 2016 2015 2017 2016 2015 2017 2016 2015
Cash Flow Hedges Interest rate swapagreements $ 0.5 $ — $ — Interest expense $ — $ — $ — Other $ — $ — $ —Foreign currencyexchange contracts 14.1 (15.5) (11.1) Cost of sales (5.7) (3.0) (8.7) Cost of sales (0.1) (0.2) 0.1
$ 14.6 $ (15.5) $ (11.1) $ (5.7) $ (3.0) $ (8.7) $ (0.1) $ (0.2) $ 0.1
Derivatives Not Designated as Hedging Instruments Location of Gain or (Loss) Recognized in
Income on Derivative Amount of Gain or (Loss)
Recognized in Income on Derivative
2017 2016 2015
Cash flow hedges
Interest rate swap agreements Other $ 0.2 $ (0.6) $ (0.5)
Foreign currency exchange contracts Cost of sales 2.0 (2.8) 0.3
Total $ 2.2 $ (3.4) $ (0.2)
NOTE 9—Retirement Benefit PlansDefined Benefit Plans: The Company maintains various defined benefit pension plans that provide benefits based on years of service and average compensationduring certain periods. The Company’s policy is to make contributions to fund these plans within the range allowed by applicable regulations. Plan assets consistprimarily of publicly traded stocks and government and corporate bonds.
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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 earnretirement benefits under defined benefit pension plans. All other eligible employees of the Company, including employees whose pension benefits are frozen,receive retirement benefits under defined contribution retirement plans.
During 2017, 2016 and 2015, the Company recognized a settlement loss of $1.0 million , $0.9 million and $1.3 million , respectively, resulting from lump-sumdistributions exceeding the total projected interest cost for the plan year for its U.S. pension plans.
The assumptions used in accounting for the defined benefit plans were as follows for the years ended December 31 :
2017 2016 2015
United States Plans Weighted average discount rates 3.40% 3.75% 4.00%Expected long-term rate of return on assets 7.50% 7.50% 7.50%
Non-U.S. Plans Weighted average discount rates 0.88% - 2.40% 0.86% - 2.50% 2.10% - 3.70%Rate of increase in compensation levels 1.50% - 2.50% 1.50% - 2.50% 2.00% - 2.50%Expected long-term rate of return on assets 1.70% - 7.00% 3.00% - 7.00% 3.00% - 7.00%
Each year, the assumptions used to calculate the benefit obligation are used to calculate the net periodic pension expense for the following year.
Set forth below is a detail of the net periodic pension expense for the defined benefit plans for the years ended December 31 :
2017 2016 2015
United States Plans Service cost $ — $ — $ —Interest cost 2.7 3.0 2.9Expected return on plan assets (4.9) (5.0) (5.5)Amortization of actuarial loss 1.8 1.6 1.5Amortization of prior service credit (0.3) (0.3) (0.3)Settlements 1.0 0.9 1.3
Net periodic pension expense (benefit) $ 0.3 $ 0.2 $ (0.1)
Non-U.S. Plans Service cost $ 0.2 $ 0.2 $ 0.2Interest cost 4.1 5.0 5.6Expected return on plan assets (9.2) (8.8) (9.6)Amortization of actuarial loss 2.7 1.4 2.0
Net periodic pension expense (benefit) $ (2.2) $ (2.2) $ (1.8)
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Set forth below is a detail of other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for the year ended December 31:
2017 2016 2015
United States Plans Current year actuarial (gain) loss $ (2.0) $ 1.6 $ 4.3Amortization of actuarial loss (1.8) (1.6) (1.5)Amortization of prior service credit 0.3 0.3 0.3Settlements (1.0) (0.9) (1.3)
Total recognized in other comprehensive income (loss) $ (4.5) $ (0.6) $ 1.8
Non-U.S. Plans Current year actuarial (gain) loss $ (13.8) $ 20.5 $ 2.0Amortization of actuarial loss (2.7) (1.4) (2.0)Current year prior service credit — — (0.1)
Total recognized in other comprehensive income (loss) $ (16.5) $ 19.1 $ (0.1)
The following table sets forth the changes in the benefit obligation and the plan assets during the year and the funded status of the defined benefit plans atDecember 31 :
2017 2016
U.S. Plans Non-U.S.
Plans U.S. Plans Non-U.S.Plans
Change in benefit obligation Projected benefit obligation at beginning of year $ 75.7 $ 165.2 $ 77.3 $ 156.1Service cost — 0.2 — 0.2Interest cost 2.7 4.1 3.0 5.0Actuarial (gain) loss 2.9 (1.9) 1.2 34.6Benefits paid (4.5) (5.8) (4.2) (5.4)Employee contributions — 0.1 — 0.1Lump sum payments (2.0) — (1.6) —Business acquisition benefit obligation — — — 2.5Foreign currency exchange rate changes — 17.1 — (27.9)
Projected benefit obligation at end of year $ 74.8 $ 179.0 $ 75.7 $ 165.2
Accumulated benefit obligation at end of year $ 74.8 $ 178.4 $ 75.7 $ 164.7
Change in plan assets Fair value of plan assets at beginning of year $ 67.2 $ 138.9 $ 68.4 $ 144.7Actual return on plan assets 9.8 20.6 4.6 21.1Employer contributions 0.5 9.2 — 3.2Employee contributions — 0.1 — 0.1Benefits paid (4.5) (5.8) (4.2) (5.4)Settlements (2.0) — (1.6) —Foreign currency exchange rate changes — 15.3 — (24.8)
Fair value of plan assets at end of year $ 71.0 $ 178.3 $ 67.2 $ 138.9
Funded status at end of year $ (3.8) $ (0.7) $ (8.5) $ (26.3)
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2017 2016
U.S. Plans Non-U.S.
Plans U.S. Plans Non-U.S.Plans
Amounts recognized in the consolidated balance sheets consist of: Noncurrent assets $ 0.1 $ 3.8 $ — $ —Noncurrent liabilities (3.9) (4.5) (8.5) (26.3)
$ (3.8) $ (0.7) $ (8.5) $ (26.3)
Components of accumulated other comprehensive income (loss) consist of: Actuarial loss $ 37.9 $ 40.1 $ 42.7 $ 53.3Prior service credit (0.3) (0.1) (0.6) (0.1)Deferred taxes (7.8) (5.2) (14.4) (9.0)Change in statutory tax rate (6.0) (2.0) (1.2) (1.6)Foreign currency translation adjustment — 2.3 — 6.1
$ 23.8 $ 35.1 $ 26.5 $ 48.7
The projected benefit obligation included in the table above represents the actuarial present value of benefits attributable to employee service rendered to date,including the effects of estimated future pay increases. The accumulated benefit obligation also reflects the actuarial present value of benefits attributable toemployee service rendered to date, but does not include the effects of estimated future pay increases.
Expected amortization of amounts included in accumulated other comprehensive income (loss) to be recognized in net periodic benefit cost in 2018 are:
Amount Net of taxActuarial loss $ 3.8 $ 3.0Prior service credit $ (0.2) $ (0.2)
The Company expects to contribute $0.5 million to its non-U.S. pension plans in 2018 . The Company does no t expect to contribute to its U.S. pension plans in2018 .
Pension benefit payments are made from assets of the pension plans. Future pension benefit payments expected to be paid from assets of the pension plans are:
U.S. Plans Non-U.S. Plans
2018 $ 6.1 $ 5.72019 6.0 6.62020 5.7 6.62021 5.6 6.62022 5.5 6.72023 - 2027 23.9 39.4
$ 52.8 $ 71.6
The expected long-term rate of return on defined benefit plan assets reflects management’s expectations of long-term rates of return on funds invested to providefor benefits included in the projected benefit obligations. The Company has established the expected long-term rate of return assumption for plan assets byconsidering the historical rates of return over a period of time that is consistent with the long-term nature of the underlying obligations of these plans as well as aforward-looking rate of return. The historical and forward-looking rates of return for each of the asset classes used to determine the Company's estimated rate ofreturn assumption were based upon the rates of return earned or expected to be earned by investments in the equivalent benchmark market indices for each of theasset classes.
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Expected returns for most of the Company's pension plans are based on a calculated market-related value of assets. Under this methodology, asset gains and lossesresulting from actual returns that differ from the Company’s expected returns are recognized in the market-related value of assets ratably over three years.
The pension plans maintain an investment policy that, among other things, establishes a portfolio asset allocation methodology with percentage allocation bandsfor individual asset classes. The investment policy provides that investments are reallocated between asset classes as balances exceed or fall below the appropriateallocation bands.
The following is the actual allocation percentage and target allocation percentage for the Company's U.S. pension plan assets at December 31:
2017 Actual
Allocation
2016 Actual
Allocation Target Allocation
Range
U.S. equity securities 44.8% 45.4% 36.0% - 54.0%Non-U.S. equity securities 20.0% 19.7% 16.0% - 24.0%Fixed income securities 33.9% 33.9% 30.0% - 40.0%Money market 1.3% 1.0% 0.0% - 10.0%
The following is the actual allocation percentage and target allocation percentage for the Company's U.K. pension plan assets at December 31 :
2017 Actual
Allocation
2016 Actual
Allocation Target Allocation
U.K. equity securities 20.2% 21.2% 21.0%Non-U.K. equity securities 49.3% 48.8% 49.0%Fixed income securities 27.7% 30.0% 30.0%Money market 2.8% —% —%
The Company maintains a pension plan for certain employees in the Netherlands which has purchased annuity contracts to meet its obligations.
The defined benefit pension plans do not have any direct ownership of Hyster-Yale common stock.
The fair value of each major category of U.S. plan assets for the Company’s pension plans are valued using quoted market prices in active markets for identicalassets, or Level 1 in the fair value hierarchy. The fair value of each major category of Non-U.S. plan assets for the Company’s pension plans are valued usingobservable inputs, either directly or indirectly, other than quoted market prices in active markets for identical assets, or Level 2 in the fair value hierarchy.Following are the values as of December 31 :
Level 1 Level 2
2017 2016 2017 2016
U.S. equity securities $ 31.8 $ 30.5 $ 26.1 $ 20.4U.K. equity securities — — 32.8 26.7Non-U.S., non-U.K. equity securities 14.2 13.3 54.0 42.0Fixed income securities 24.1 22.7 60.9 49.8Money market 0.9 0.7 4.5 —
Total $ 71.0 $ 67.2 $ 178.3 $ 138.9
Defined Contribution Plans: The Company has defined contribution (401(k)) plans for substantially all U.S. employees and similar plans for employees outsideof the United States. The Company generally matches employee contributions based on plan provisions. In addition, the Company has defined contributionretirement plans whereby the contribution to participants is determined annually based on a formula that includes the effect of actual compared with targetedoperating results and the age
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and compensation of the participants. Total costs, including Company contributions, for these plans were $24.3 million , $21.2 million and $23.5 million in 2017 ,2016 and 2015 , respectively.
NOTE 10—Inventories
Inventories are stated at the lower of cost or market for last-in, first-out (“LIFO”) inventory or lower of cost or net realizable value for first-in, first-out (“FIFO”)inventory. At December 31, 2017 and 2016 , 49% and 54% , respectively, of total inventories were determined using the LIFO method, which consists primarily ofmanufactured inventories, including service parts, in the United States. The FIFO method is used with respect to all other inventories.
The cost components of inventory include raw materials, purchased components, direct and indirect labor, utilities, depreciation, inbound freight charges,purchasing and receiving costs, inspection costs and warehousing costs. Reserves are maintained for estimated obsolescence or excess inventory equal to thedifference between the cost of inventory and the net realizable value based upon assumptions about future demand and market conditions. Upon a subsequent saleor disposal of the impaired inventory, the corresponding reserve for impaired value is relieved to ensure that the cost basis of the inventory reflects any write-downs.
Inventories are summarized as follows:
December 31
2017 2016
Finished goods and service parts $ 193.7 $ 171.9Work in process 19.9 26.1Raw materials 239.0 191.4
Total manufactured inventories 452.6 389.4LIFO reserve (40.7) (37.2)
Total inventory $ 411.9 $ 352.2
NOTE 11—Property, Plant and Equipment, Net
Property, plant and equipment are recorded at cost. Depreciation and amortization are provided in amounts sufficient to amortize the cost of the assets, includingassets recorded under capital leases, over their estimated useful lives using the straight-line method. Buildings are generally depreciated using a 20, 40 or 50-yearlife, improvements to land and buildings are depreciated over estimated useful lives ranging up to 40 years and equipment is depreciated over estimated usefullives ranging from three to 15 years. Capital grants received for the acquisition of equipment are recorded as reductions of the related equipment cost and reducefuture depreciation expense. Repairs and maintenance costs are expensed when incurred.
The Company periodically evaluates long-lived assets, including intangible assets with finite lives, for impairment when changes in circumstances or theoccurrence of certain events indicate the carrying amount of an asset may not be recoverable. Upon identification of indicators of impairment, assets and liabilitiesare grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets or liabilities. The asset group would beconsidered impaired when the estimated future undiscounted cash flows generated by the asset group are less than carrying value. If the carrying value of an assetgroup is considered impaired, an impairment charge is recorded for the amount that the carrying value of the asset group exceeds its fair value. Fair value isestimated as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurementdate.
During the fourth quarter of 2017, in connection with the preparation of the Company's annual operating plan for 2018 and longer-term forecast, the Companyidentified indicators of impairment at Nuvera due to the extension of time expected to commercialize Nuvera's products and the related length of time needed toachieve break-even operating results and positive cash flows. Accordingly, the Company performed an impairment analysis during the fourth quarter of 2017 ofNuvera's long-lived assets, including property, plant and equipment and intangible assets with finite lives. Based on this analysis, it was determined that the fairvalue of these assets was less than the respective carrying amounts of such assets, and accordingly, the Company recognized an impairment charge of $4.9 millionin the Nuvera segment, which is included in selling, general and administrative expenses in the consolidated statement of operations. The impairment chargereduced property, plant, and equipment by $3.7 million and intangible assets by $1.2 million . The estimated fair value of intangible assets with finite lives
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was determined using a relief from royalty method and property, plant and equipment was determined using a cost approach. These valuation methods use Level 3inputs under the fair value hierarchy.
Property, plant and equipment, net includes the following:
December 31
2017 2016
Land and land improvements $ 27.4 $ 26.3Plant and equipment 700.4 645.1
Property, plant and equipment, at cost 727.8 671.4Allowances for depreciation and amortization (462.4) (416.3)
$ 265.4 $ 255.1
Total depreciation and amortization expense on property, plant and equipment was $37.4 million , $34.5 million and $28.4 million during 2017 , 2016 , and 2015 ,respectively.
NOTE 12—Goodwill and Intangible Assets
The Company evaluates the carrying amount of goodwill and indefinite-lived intangible assets for impairment annually as of May 1 st and between annualevaluations if changes in circumstances or the occurrence of certain events indicate potential impairment. The Company uses either a qualitative or quantitativeanalysis to determine whether fair value exceeds carrying value. Goodwill impairment testing for 2017 was performed using a quantitative analysis for eachreporting unit. As part of our quantitative testing process for goodwill, the Company estimated fair values using a discounted cash flow approach from theperspective of a market participant. Significant estimates in the discounted cash flow approach are cash flow forecasts of the reporting units, the discount rate, theterminal business value and the projected income tax rate. The cash flow forecasts of the reporting units are based upon management’s long-term view of marketsand are the forecasts that are used by senior management and the Board of Directors to evaluate operating performance. The discount rate utilized is management’sestimate of what the market’s weighted average cost of capital is for a company with a similar debt rating and stock volatility, as measured by beta. The projectedincome tax rates utilized are the statutory tax rates for the countries where each reporting unit operates. The terminal business value is determined by applying abusiness growth factor to the latest year for which a forecast exists. As part of the goodwill quantitative testing process, the Company evaluates whether there arereasonably likely changes to management’s estimates that would have a material impact on the results of the goodwill impairment testing.
The annual testing of goodwill for impairment was conducted as of May 1, 2017. The fair value of each reporting unit was in excess of its carrying value and thus,no impairment exists.
The indefinite-lived intangible assets are the Bolzoni trademarks. Fair values used in testing for potential impairment of the trademarks are calculated by applyingan estimated market value royalty rate to the forecasted revenues of the businesses that utilize those assets. The assumed cash flows from this calculation arediscounted using the Company’s weighted average cost of capital. The annual testing of indefinite-lived intangibles for impairment was conducted as of May 1,2017. The fair value of the indefinite-lived intangible assets was in excess of its carrying value and thus, no impairment exists.
The following table summarizes intangible assets, other than goodwill, recorded in the consolidated balance sheets:
December 31, 2017 Gross Carrying Amount Accumulated Amortization Net Balance
Intangible assets not subject to amortization Trademarks $ 18.0 $ — $ 18.0
Intangible assets subject to amortization Customer and contractual relationships 30.5 (6.4) 24.1Patents and technology 16.5 (3.1) 13.4Trademarks 0.6 — 0.6
Total $ 65.6 $ (9.5) $ 56.1
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December 31, 2016 Gross Carrying Amount Accumulated Amortization Net Balance
Intangible assets not subject to amortization Trademarks $ 15.8 $ — $ 15.8
Intangible assets subject to amortization Customer and contractual relationships $ 27.9 $ (2.9) $ 25.0Patents and technology 16.3 (2.0) 14.3Trademarks 1.2 (0.1) 1.1
Total $ 61.2 $ (5.0) $ 56.2
As further described in Note 11, the Company recognized a $1.2 million impairment charge for Nuvera consisting of $0.8 million and $0.4 million for patents andtechnology and trademarks, respectively.
Amortization expense for intangible assets, which is recognized on a straight-line basis over the estimated useful life of the related asset, was $5.7 million and $4.6million in 2017 and 2016 , respectively. Expected annual amortization expense of other intangible assets, based upon December 31, 2017 U.S. dollar values, for thenext five years is as follows: $4.9 million in 2018 , $4.8 million in 2019 , $4.5 million in 2020 , $3.6 million in 2021 and $3.1 million in 2022 . The weighted-average amortization period for intangible assets is as follows:
Intangible assets subject to amortization Weighted-Average Useful Lives (Years)
Customer relationships 10Engineering drawings 9Non-compete agreement 2Patents 7Trademarks 10
The following table summarizes goodwill by segment as of December 31, 2017 and 2016 :
Carrying Amount of Goodwill
Americas EMEA Bolzoni Total
Balance at January 1, 2016 $ — $ — $ — $ —Additions 1.7 — 54.2 55.9Foreign currency translation — — (5.2) (5.2)Balance at December 31, 2016 $ 1.7 $ — $ 49.0 $ 50.7Additions — 0.8 1.0 1.8Foreign currency translation — — 6.6 6.6
Balance at December 31, 2017 $ 1.7 $ 0.8 $ 56.6 $ 59.1
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NOTE 13—Current and Long-Term Financing
The following table summarizes available and outstanding borrowings:
December 31
2017 2016
Total outstanding borrowings: Revolving credit agreements $ 6.1 $ 116.0Term loan, net 190.9 —Other debt 73.9 68.5Capital lease obligations 19.8 26.7
Total debt outstanding $ 290.7 $ 211.2
Plus: discount on term loan and unamortized deferred financing fees 4.1 —
Total debt outstanding, gross $ 294.8 $ 211.2
Current portion of borrowings outstanding $ 74.5 $ 129.0
Long-term portion of borrowings outstanding $ 216.2 $ 82.2
Total available borrowings, net of limitations, under revolving credit agreements $ 218.8 $ 291.2
Unused revolving credit agreements $ 212.7 $ 175.2
Weighted average stated interest rate on total borrowings 5.2% 4.4%
Weighted average effective interest rate on total borrowings (including interest rate swap agreements) 3.9% 4.4%
Annual maturities of total debt, excluding capital leases, are as follows:
2018 $ 68.52019 31.32020 10.12021 10.12022 10.0Thereafter 145.0
$ 275.0
Interest paid on total debt was $13.6 million , $5.6 million and $3.6 million during 2017 , 2016 and 2015 , respectively.
The Company has a $200.0 million secured, floating-rate revolving credit facility (the "Facility”) that expires in April 2022. There were no borrowings outstandingunder the Facility at December 31, 2017 . The excess availability under the Facility, at December 31, 2017 , was $195.9 million , which reflects reductions of $4.1million for letters of credit and other restrictions. The Facility consists of a U.S. revolving credit facility in the amount of $120.0 million and a non-U.S. revolvingcredit facility in the 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 inminimum increments of $10.0 million subject to certain conditions. The obligations under the Facility are generally secured by a first priority lien on the workingcapital assets of the borrowers in the Facility, which include but are not limited to, cash and cash equivalents, accounts receivable and inventory and a secondpriority lien on the Term Loan Collateral (defined below). The approximate book value of assets held as collateral under the Facility was $1.0 billion as ofDecember 31, 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, as ofDecember 31, 2017 , for U.S. base rate loans and LIBOR loans were 0.25% and 1.25% , respectively. The applicable margins, as of December 31, 2017 , for non-U.S. base rate loans and LIBOR loans was 1.25% . The applicable LIBOR interest rates under the Facility on December 31, 2017 were 2.73% and 1.25% ,respectively, for the U.S. and non-U.S. facility including the applicable floating rate margin. The Facility also required the payment of a fee of 0.350% per annumon the unused commitment as of December 31, 2017 .
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The Facility includes restrictive covenants, which, among other things, limit additional borrowings and investments of the Company and its subsidiaries subject tocertain 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 formabasis, is greater than fifteen percent and less than or equal to twenty percent, the Company may pay dividends subject to achieving a minimum fixed chargecoverage 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 proforma basis, the Company may pay dividends without any minimum fixed charge coverage ratio requirement. The Facility also requires the Company to achieve aminimum fixed charge coverage ratio in certain circumstances in which total excess availability is less than ten percent of the total commitments under the Facilityor 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 December 31,2017, the Company was in compliance with the covenants in the Facility.
In 2017, the Company entered into an agreement for a $200.0 million term loan (the “Term Loan”), which matures in May 2023. The Term Loan requires quarterlyprincipal 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 thefinal principal repayment due on the May 30, 2023 . The Company may also be required to make mandatory prepayments, in certain circumstances, as provided inthe Term Loan. At December 31, 2017 , there was $195.0 million of principal outstanding under the Term Loan which has been reduced in the ConsolidatedBalance Sheet by $4.1 million of discounts and unamortized deferred financing fees.
The obligations under the Term Loan are generally secured by a first priority lien on the present and future shares of capital stock, material real property, fixturesand general intangibles consisting of intellectual property (collectively, the "Term Loan Collateral") and a second priority lien on the remaining collateral of theU.S. borrowers in the Facility. The approximate book value of assets held as collateral under the Term Loan was $710 million as of December 31, 2017 .
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 applicablemargin. 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 loansand 3.75% to 4.00% for Eurodollar loans. The weighted average interest rate on the amount outstanding under the Term Loan at December 31, 2017 was 5.57% .In addition, the Term Loan includes restrictive covenants, which, among other things, limit additional borrowings and investments of the Company subject tocertain thresholds, as provided in the Term Loan. The Term Loan limits the payment of regularly scheduled dividends and other restricted payments to $50.0million 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. AtDecember 31, 2017 , the Company was in compliance with the covenants in the Term Loan.
The Company incurred fees and expenses of $4.7 million and $1.7 million in 2017 and 2016 , respectively. These fees related to the amendment to the Facility andentry 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 theTerm Loan are presented as a direct deduction of the corresponding debt.
The Company had other debt outstanding, excluding capital leases, of approximately $80.0 million at December 31, 2017 . In addition to the excess availabilityunder the Facility, the Company had remaining availability of $16.8 million related to other non-U.S. revolving credit agreements.
NOTE 14—Leasing Arrangements
The Company leases certain office, manufacturing and warehouse facilities and machinery and equipment under noncancellable capital and operating leases thatexpire at various dates through 2031. Many leases include renewal and/or fair value purchase options.
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Future minimum capital and operating lease payments at December 31, 2017 are:
CapitalLeases
OperatingLeases
2018 $ 7.1 $ 20.22019 5.9 13.92020 4.9 10.32021 2.4 7.42022 — 6.1Subsequent to 2022 — 17.0
Total minimum lease payments 20.3 $ 74.9
Amounts representing interest 0.5 Present value of net minimum lease payments 19.8 Current maturities 6.8
Long-term capital lease obligation $ 13.0
Rental expense for all operating leases was $22.5 million , $17.3 million and $18.3 million for 2017 , 2016 and 2015 , respectively. The Company also recognized$7.9 million , $5.3 million and $2.7 million in rental income on subleases of equipment for 2017 , 2016 and 2015 , respectively. These subleases were primarilyrelated to lift trucks in which the Company records revenues over the term of the lease in accordance with the rental agreements with its customers. The subleaserental income for these lift trucks is included in “Revenues” and the related rent expense is included in “Cost of sales” in the Consolidated Statements ofOperations for each period. Aggregate future minimum rentals to be received under noncancellable subleases of lift trucks as of December 31, 2017 are $26.8million .
Assets recorded under capital leases are included in property, plant and equipment and consist of the following:
December 31
2017 2016
Plant and equipment $ 35.9 $ 37.5Less accumulated amortization (10.4) (8.1)
$ 25.5 $ 29.4
Amortization of plant and equipment under capital leases is included in depreciation expense. Capital lease obligations of $0.2 million , $12.8 million and $15.2million were incurred in connection with lease agreements to acquire machinery and equipment during 2017 , 2016 and 2015 , respectively.
NOTE 15—Product Warranties
The Company provides a standard warranty on its lift trucks, generally for six to twelve months or 1,000 to 2,000 hours . For certain series of lift trucks, theCompany provides a standard warranty of one to two years or 2,000 or 4,000 hours . For components in some series of lift trucks, the Company provides a standardwarranty 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 recordsa liability for such costs at the time product revenue is recognized.
In addition, the Company sells separately priced extended warranty agreements that generally provide a warranty for an additional two to five years or up to 2,400to 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 warrantycontracts.
The Company also maintains a quality enhancement program under which it provides for specifically identified field product improvements in its warrantyobligation. Accruals under this program are determined based on estimates of the potential number of claims and the cost of those claims based on historical costs.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShareandPercentageData)
The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Factors that affect the warranty liabilityinclude 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 2016
Balance at January 1 $ 52.3 $ 55.5Current year warranty expense 32.2 35.4Change in estimate related to pre-existing warranties (8.9) (10.1)Payments made (26.5) (27.9)Foreign currency effect 1.9 (0.6)
Balance at December 31 $ 51.0 $ 52.3
NOTE 16—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 productliability, environmental and other claims. These proceedings and claims are incidental to the ordinary course of business. Management believes that it hasmeritorious defenses and will vigorously defend the Company in these actions. Any costs that management estimates will be paid as a result of these claims areaccrued when the liability is considered probable and the amount can be reasonably estimated. Although the ultimate disposition of these proceedings is notpresently determinable, management believes, after consultation with its legal counsel, that the likelihood is remote that costs will be incurred materially in excessof accruals already recognized.
NOTE 17—Guarantees
Under various financing arrangements for certain customers, including independent retail dealerships, the Company provides recourse or repurchase obligationssuch 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 providingrecourse or repurchase obligations generally range from one to five years. Total amounts subject to recourse or repurchase obligations at December 31, 2017 and2016 were $203.5 million and $149.3 million , respectively. As of December 31, 2017 , losses anticipated under the terms of the recourse or repurchase obligationswere not significant and reserves have been provided for such losses based on historical experience in the accompanying consolidated financial statements. TheCompany generally retains a security interest in the related assets financed such that, in the event the Company would become obligated under the terms of therecourse or repurchase obligations, the Company would take title to the assets financed. The fair value of collateral held at December 31, 2017 was approximately$254.8 million based on Company estimates. The Company estimates the fair value of the collateral using information regarding the original sales price, the currentage of the equipment and general market conditions that influence the value of both new and used lift trucks. The Company also regularly monitors the externalcredit ratings of the entities for which it has provided recourse or repurchase obligations. As of December 31, 2017 , the Company did not believe there was asignificant 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 thefuture. 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 $54.3million of recourse or repurchase obligations for these certain eligible dealers are limited to 7.5% of their original loan balance, or $12.0 million as ofDecember 31, 2017 . The $54.3 million is included in the $203.5 million of total amounts subject to recourse or repurchase obligations at December 31, 2017 .
Generally, the Company sells lift trucks through its independent dealer network or directly to customers. These dealers and customers may enter into a financingtransaction with HYGFS or other unrelated third parties. HYGFS provides debt and lease financing to both dealers and customers. On occasion, the credit qualityof a customer or credit concentration issues within WF may require the Company to provide recourse or repurchase obligations of the lift trucks purchased bycustomers and financed through HYGFS. At December 31, 2017 , approximately $174.2 million of the Company's total recourse or repurchase obligations of$203.5 million related to transactions with HYGFS. In connection with the joint venture agreement, the Company also provides a guarantee to WF for 20% ofHYGFS’ 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. AtDecember 31, 2017 , loans from WF
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShareandPercentageData)
to HYGFS totaled $1.0 billion . Although the Company’s contractual guarantee was $205.9 million , the loans by WF to HYGFS are secured by HYGFS’ customerreceivables, of which the Company guarantees $174.2 million . Excluding the HYGFS receivables guaranteed by the Company from HYGFS’ loans to WF, theCompany’s incremental obligation as a result of this guarantee to WF is $179.6 million , which is secured by 20% of HYGFS' customer receivables and othersecured assets of $272.3 million . HYGFS has not defaulted under the terms of this debt financing in the past, and although there can be no assurances, theCompany 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 December 31, 2017 :
HYGFS TotalTotal recourse or repurchase obligations $ 174.2 $ 203.5Less: exposure limited for certain dealers 54.3 54.3Plus: 7.5% of original loan balance 12.0 12.0 131.9 161.2Incremental obligation related to guarantee to WF 179.6 179.6
Total exposure related to guarantees $ 311.5 $ 340.8
NOTE 18—Equity Investments and Related Party TransactionsThe Company maintains an interest in one variable interest entity, HYGFS. HYGFS is a joint venture with WF formed primarily for the purpose of providingfinancial services to independent Hyster ® and Yale ® lift truck dealers and National Account customers in the United States and is included in the Americassegment. The Company does not have a controlling financial interest or have the power to direct the activities that most significantly affect the economicperformance of HYGFS. Therefore, the Company has concluded that the Company is not the primary beneficiary and uses the equity method to account for its20% interest in HYGFS. The Company does not consider its variable interest in HYGFS to be significant.
Generally, the Company sells lift trucks through its independent dealer network or directly to customers. These dealers and customers may enter into a financingtransaction with HYGFS or other unrelated third parties. HYGFS provides debt financing to dealers and lease financing to both dealers and customers. HYGFS’total purchases of Hyster ® and Yale ® lift trucks from dealers, and directly from the Company such that HYGFS could provide retail lease financing to customersfor the years ended December 31, 2017 , 2016 and 2015 were $475.9 million , $438.8 million and $483.2 million , respectively. Of these amounts, $71.1 million ,$69.4 million and $78.6 million for the years ended December 31, 2017 , 2016 and 2015 , respectively, were invoiced directly from the Company to HYGFS sothat the customer could obtain operating lease financing from HYGFS. Amounts receivable from HYGFS were $10.4 million and $12.1 million at December 31,2017 and 2016 , respectively. The Company provides recourse for certain financing provided by HYGFS to its dealers and customers. In addition, the Companyalso provides a guarantee to WF for their portion of HYGFS' debt. Refer to Note 17 for additional details relating to the guarantees provided to WF.
In addition to providing financing to dealers, HYGFS provides operating lease financing to the Company. Operating lease obligations primarily relate to specificsale-leaseback-sublease transactions for certain customers whereby the Company sells lift trucks to HYGFS, leases these lift trucks back under an operating leaseagreement and then subleases those lift trucks to customers under an operating lease agreement. Total obligations to HYGFS under the operating lease agreementswere $15.8 million and $17.2 million at December 31, 2017 and 2016 , respectively. In addition, the Company provides certain subsidies to its dealers that are paiddirectly to HYGFS. Total subsidies were $3.3 million , $2.8 million and $2.8 million for 2017 , 2016 and 2015 , respectively.
The Company provides certain services to HYGFS for which it receives compensation under the terms of the joint venture agreement. The services consistprimarily of administrative functions and remarketing services. Total income recorded by the Company related to these services was $9.5 million in 2017 , $9.8million in 2016 and $14.6 million in 2015 . In addition, in December 2015, the Company received $5.0 million as an amendment fee, that was deferred and is beingrecognized over the remaining term of the agreement which expires in December 2018.
The Company has a 50% ownership interest in SN, a limited liability company that was formed primarily to manufacture and distribute Sumitomo-branded lifttrucks in Japan and export Hyster ® - and Yale ® - branded lift trucks and related components and service parts outside of Japan. The Company purchases productsfrom SN under agreed-upon terms. The Company’s ownership
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in SN is also accounted for using the equity method of accounting and is included in the JAPIC segment. The Company purchases products from SN under normaltrade terms based on current market prices. In 2017 , 2016 and 2015 , purchases from SN were $46.8 million , $55.0 million and $57.1 million , respectively.Amounts payable to SN at December 31, 2017 and 2016 were $18.1 million and $16.5 million , respectively.
The Company recognized income of $0.4 million , $0.5 million and $0.3 million for payments from SN for use of technology developed by the Company which isincluded in “Revenues” in the Consolidated Statements of Operations for the years ended December 31, 2017 , 2016 and 2015 , respectively.
Summarized unaudited financial information for equity investments is as follows:
2017 2016 2015
Statement of Operations Revenues $ 350.3 $ 326.7 $ 315.0Gross profit $ 111.9 $ 103.4 $ 98.7Income from continuing operations $ 127.2 $ 25.5 $ 23.1Net income $ 127.2 $ 25.5 $ 23.1Balance Sheet Current assets $ 125.3 $ 115.5 Non-current assets $ 1,484.0 $ 1,272.2 Current liabilities $ 120.7 $ 117.2 Non-current liabilities $ 1,241.6 $ 1,138.0
The results of HYGFS for 2017, which are included in the table above, include a provisional benefit of $99.2 million related to the Tax Reform Act, of which theCompany has recognized $19.8 million under the equity method of accounting for HYGFS.
At December 31, 2017 and 2016 , the investment in HYGFS was $35.2 million and $13.8 million , respectively, the investment in SN was $36.8 million and $31.6million , respectively, and Bolzoni's investment in unconsolidated affiliates was $0.5 million and $0.5 million , respectively. The investments are included in“Investment in Unconsolidated Affiliates” in the Consolidated Balance Sheets. The Company received dividends of $2.4 million , $4.8 million and $2.3 millionfrom HYGFS in 2017 , 2016 and 2015 , respectively. The Company received dividends of $0.4 million , $0.3 million and $0.2 million from SN in 2017 , 2016 and2015 , respectively.
During 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 andvalued using a quoted market price in an active market, or Level 1 in the fair value hierarchy. The Company's investment as of December 31, 2017 was $9.4million , which includes a $3.3 million unrealized gain ( $2.8 million net of tax) that was recorded in OCI in the Consolidated Balance Sheet.
NOTE 19—Acquisitions
On April 1, 2016, the Company's indirect wholly owned subsidiary, Hyster-Yale Capital Holding Italy S.r.l. (“HY Italy”), acquired 100% of the outstanding sharesof Penta Holding S.p.A. ("Penta") from its shareholders for an aggregatecash purchase price of €53.5 million (approximately $60.9 million as of April 1, 2016), which includes the value of the majority stake (approximately 50.5% ) ofBolzoni owned by Penta, as well as Penta's other assets and other liabilities.
Subsequent to the completion of the acquisition of Penta, HY Italy, in compliance with Italian law and CONSOB regulations, commenced the steps to launch amandatory tender offer in Italy for all of the remaining outstanding shares of Bolzoni, with the intention to achieve the delisting of Bolzoni following completion ofthe mandatory tender offer and the processes related thereto.
During the second and third quarters of 2016, HY Italy acquired the remaining outstanding interest in Bolzoni for €55.4 million or approximately $62.2 million ,which was funded using cash on hand and borrowings under the Facility. On July 6, 2016, Bolzoni was delisted from the Italian stock exchange.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES(TabularAmountsinMillions,ExceptPerShareandPercentageData)
The acquisition of Bolzoni added a broader range of forklift truck attachments, forks and lift tables to the Company's suite of products and provides an importantplatform for additional growth. The acquisition of Bolzoni has been accounted for using the acquisition method of accounting, which requires, among other things,the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date. The process of estimating the fair values ofintangible assets and certain tangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates.
The following table summarizes the final allocation of the fair values of the assets acquired and the liabilities assumed of Bolzoni as of April 1, 2016:
Acquired Assets and Liabilities Fair Value
Cash $ 8.0Accounts receivable 34.0Inventories 31.5Property, plant and equipment 43.3Intangible Assets 54.8Other assets 0.5Total assets acquired $ 172.1Accounts payable 32.7Total debt 44.3Long-term deferred tax liabilities 12.5Other liabilities 8.0Total liabilities assumed $ 97.5Noncontrolling interest 5.7Net assets acquired $ 68.9Initial purchase price $ 60.9Interest acquired in mandatory tender offer $ 63.2
Goodwill $ 55.2
Acquired Intangible Assets Fair Value Weighted-Average Useful Lives (Years) Valuation Method
Customer relationships $ 22.1 13 Excess EarningsTrademarks 17.1 Indefinite Relief from RoyaltyEngineering drawings 12.5 10 Reproduction CostPatents 2.1 10 Relief from RoyaltyNon-compete agreement 1.0 3 Lost ProfitTotal $ 54.8
The fair value of accounts receivable acquired was $34.0 million with the gross contractual amount being $34.0 million . At the time of the acquisition, theCompany expected to collect all accounts receivable. The $55.2 million of goodwill was assigned to the Bolzoni segment. The goodwill recognized is attributableprimarily to expected synergies and the assembled workforce of Bolzoni. None of the goodwill is expected to be deductible for income tax purposes. The results ofBolzoni’s operations have been included in the consolidated financial statements since the acquisition date and are reflected in the Bolzoni segment. Pro formainformation has not been presented as it would not be materially different from historical reported results of operations.
In April 2016, the Company entered into a non-cash working capital transaction to acquire a telematics installation and distribution business with intangibles ofapproximately $8.1 million . The results of operations of this acquired business have been included in the America's segment since the date of acquisition and arenot material to the Company's results of operations, financial position or cash flows.
On December 6, 2017, the Company's indirect wholly owned subsidiary, Hyster-Yale Acquisition Holding Ltd., entered into an Equity Transfer Agreement(“ETA”) with KNSN Pipe & Pile Company Limited (“KNSN”), pursuant to which Acquisition Co.
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will purchase 75% of the equity interest of Zhejiang Maximal Forklift Co., Ltd. (“Maximal”) from KNSN for an aggregate purchase price of $90.0 million . Afterthe closing under the ETA, which the Company currently anticipates to be in the second quarter of 2018, the remaining 25% of the equity interest of Maximal willbe owned by the current senior management of Maximal, through Y-C Hong Kong Holding Company Limited (“HK Holding Co.”). Maximal is a privately heldmanufacturer of utility and standard lift trucks and specialized materials handling equipment founded in 2006 in the Hangzhou, Zhejiang Province of China . Under the terms of the ETA, upon the closing, the Company will pay $81.0 million to a jointly-controlled bank account under the name of KNSN, and KNSN isonly allowed to use such amount to repay intercompany indebtedness owed by KNSN to Maximal and to remove existing related-party guarantees provided byMaximal. Any balance amount remaining after fulfilling the specified purposes will belong to KNSN. In addition, upon the closing, the Company will pay $9.0million to an escrow account, which will be released to KNSN in two installments. The first installment of $2.7 million will be released on the second anniversaryof the closing and the second installment of $6.3 million will be released on the third anniversary of the closing subject to a number of conditions. The closing ofthe transaction is subject to customary closing conditions and required regulatory approvals. KNSN is obligated to indemnify the Company from and against anybreach of representations and warranties and any liabilities and losses associated with the pre-closing operations of Maximal. Either party has a right to terminatethe transaction if the closing conditions (other than governmental approvals) have not been satisfied within nine months of the signing, with no penalties on eitherparty.
In addition, on December 6, 2017, the Company signed an incentive agreement with Mr. Jin Hong Lu, a key member of senior management of Maximal and themajority shareholder of KNSN. Pursuant to this agreement, the Company will pay $10.0 million to Mr. Lu by the third anniversary of the closing under the ETA,provided that Mr. Lu, his immediate family members and any affiliates fully comply with the non-competition, conflict of interest, non-solicitation, andcompliance covenants set forth in the agreement.
On December 6, 2017, pursuant to the terms of the ETA, Mr. Lu signed and issued a Guarantee and Undertaking Letter for the benefit of the Company,guaranteeing KNSN’s performance of all terms under the ETA. In the case of any breach of the ETA by KNSN, Mr. Lu shall be liable and shall indemnify theCompany against any losses arising from such breach in accordance with the ETA and applicable laws.
The Company recognized $2.5 million and $6.6 million of acquisition-related costs during 2017 and 2016, respectively, which are included in the Americassegment. These costs are included in the line “Selling, general and administrative expenses” in the Consolidated Statement of Operations.
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SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTSHYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 2017 , 2016 AND 2015
Additions
Description
Balance atBeginning of
Period
Charged toCosts andExpenses
Charged toOther Accounts— Describe (A)
Deductions— Describe
Balance atEnd ofPeriod
(In millions)2017
Reserves deducted from asset accounts: Allowance for doubtful accounts (B) $ 14.9 $ 0.2 $ 1.1 $ 7.5 (C) $ 8.7
2016 Reserves deducted from asset accounts:
Allowance for doubtful accounts (B) $ 12.8 $ 6.3 $ (2.7) $ 1.5 (C) $ 14.92015
Reserves deducted from asset accounts: Allowance for doubtful accounts (B) $ 16.3 $ 4.9 $ (2.1) $ 6.3 (C) $ 12.8
(A) Foreign currency translation adjustments and other.(B) Includes allowance of receivables classified as long-term of $5.0 million , $4.6 million and $4.5 million in 2017 , 2016 and 2015 , respectively.(C) Write-offs, net of recoveries.
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Exhibit 10.15HYSTER-YALE MATERIALS HANDLING, INC.
LONG-TERM EQUITY INCENTIVE PLAN
1. Purpose of the Plan
The purpose of this Long-Term Equity Incentive Plan (this “Plan”) is to further the long-term profits and growth of Hyster-Yale Materials Handling, Inc.(the “Company”) by enabling the Company and/or its wholly-owned subsidiaries (together with the Company, the “Employers”) to attract, retain and rewardexecutive employees of the Employers by offering long-term incentive compensation to those executive employees who will be in a position to make significantcontributions to such profits and growth. This incentive compensation is in addition to annual compensation and is intended to encourage enhancement of theCompany's stockholder value.
2. Definitions
(a) “Average Award Share Price.” Except as otherwise provided in the Guidelines for the 2012 and 2013 Performance Periods, Average AwardShare Price means the lesser of (i) the average of the closing price per share of Class A Common Stock on the New York Stock Exchange on theFriday (or if Friday is not a trading day, the last trading day before such Friday) for each week during the calendar year preceding thecommencement of the Performance Period (or such other previous calendar year as determined by the Committee and specified in theGuidelines; provided, however, that with respect to any Qualified Performance-Based Award, such determination shall be made not later than 90days after the commencement of the applicable Performance Period) or (ii) the average of the closing price per share of Class A Common Stockon the New York Stock Exchange on the Friday (or if Friday is not a trading day, the last trading day before such Friday) for each week of theapplicable Performance Period.
(b) “Award” means an award paid to a Participant under this Plan for a Performance Period (or portion thereof) in an amount determined pursuant toa formula based upon the achievement of Performance Objectives which is established by the Committee; provided, however, that with respectto any Qualified Performance-Based Award, such formula shall be established not later than 90 days after the commencement of thePerformance Period on which the Award is based and prior to the completion of 25% of such Performance Period. The Committee shall allocatethe amount of an Award between the cash component, to be paid in cash, and the equity component, to be paid in Award Shares, pursuant to aformula which is established by the Committee; provided, however, that with respect to any Qualified Performance-Based Award, such formulashall be established not later than 90 days after the commencement of the Performance Period on which the Award is based and prior to thecompletion of 25% of such Performance Period.
(c) “Award Shares” means fully-paid, non-assessable shares of Class A Common Stock that are issued pursuant to, and with such restrictions as areimposed by, the terms of this Plan and the Guidelines. Such shares may be shares of original issuance or treasury shares or a combination of theforegoing and, in the discretion of the Company, may be issued as certificated or uncertificated shares.
(d) “Change in Control” means the occurrence of an event described in Appendix 1 hereto.
(e) “Class A Common Stock” means the Company's Class A Common Stock, par value $1.00 per share.
(f) “Committee” means the Compensation Committee of the Company's Board of Directors or any other committee appointed by the Company'sBoard of Directors to administer this Plan in accordance with Section 3, so long as any such committee consists of not less than two directors ofthe Company and so long
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as each member of the Committee (i) is an “outside director” for purposes of Section 162(m) and (ii) is a “non-employee director” for purposesof Rule 16b-3.
(g) “Covered Employee” means any Participant who is a “covered employee” for purposes of Section 162(m) or any Participant who the Committeedetermines in its sole discretion could become a “covered employee.”
(h) “Guidelines” means the guidelines that are approved by the Committee for the administration of the Awards granted under this Plan. To theextent that there is any inconsistency between the Guidelines and this Plan, the Guidelines will control.
(i) “Participant” means any person who is classified as a salaried employee of the Employers (including directors of the Employers who are alsosalaried employees of the Employers) who, in the judgment of the Committee, occupies a position in which his efforts may significantlycontribute to the profits or growth of the Company and who is designated by the Compensation Committee as a Participant in the Plan. A “Non-U.S. Participant” shall mean a Participant who resides outside of the U.S. and a “U.S. Participant” shall mean any Participant who is not a Non-U.S. Participant. Notwithstanding the foregoing, (A) leased employees (as defined in Code Section 414) and (B) persons who are participants inthe NACCO Materials Handling Group, Inc. Long-Term Incentive Compensation Plan for a particular Performance Period shall not be eligibleto participate in this Plan for the same Performance Period.
(j) “Payment Period” means, with respect to any Performance Period, the period from January 1 to March 15 of the calendar year immediatelyfollowing the calendar year in which such Performance Period ends.
(k) “Performance Period” means any period of one or more years (or portion thereof) on which an Award is based, as established by the Committee.Any Performance Period(s) applicable to a Qualified Performance-Based Award shall be established by the Committee not later than 90 daysafter the commencement of the Performance Period on which such Qualified Performance-Based Award will be based and prior to completion of25% of such Performance Period.
(l) “Performance Objectives” shall mean the performance objectives established pursuant to this Plan for Participants. Performance Objectives maybe described in terms of Company-wide objectives or objectives that are related to the performance of the individual Participant or anysubsidiary, division, business unit, department or function of the Company. Performance Objectives may be measured on an absolute or relativebasis. Different groups of Participants may be subject to different Performance Objectives for the same Performance Period. Relativeperformance may be measured by a group of peer companies or by a financial market index. Any Performance Objectives applicable to aQualified Performance-Based Award shall be based on one or more, or a combination, of the following criteria, or the attainment of specifiedlevels of growth or improvement in one or more, or a combination, of the following criteria: return on equity, return on total capital employed,diluted earnings per share, total earnings, earnings growth, return on capital, return on assets, return on sales, earnings before interest and taxes,revenue, revenue growth, gross margin, net or standard margin, return on investment, increase in the fair market value of shares, share price(including, but not limited to, growth measures and total stockholder return), operating profit, net earnings, cash flow (including, but not limitedto, operating cash flow and free cash flow), inventory turns, financial return ratios, market share, earnings measures/ratios, economic valueadded, balance sheet measurements (such as receivable turnover), internal rate of return, customer satisfaction surveys or productivity, netincome, operating profit or increase in operating profit, market share, increase in market share, sales value increase over time, economic valueadded, economic value increase over time, new project development or net sales.
(m) “Qualified Performance-Based Award” shall mean any Award or portion of an Award granted to a Covered Employee that is intended to satisfythe requirements for “qualified performance-based compensation” under Section 162(m).
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(n) “Retire” or “Retirement” means a termination of employment after reaching age 60 with at least 15 years of service.
(o) “Rule 16b-3” means Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (or any successor rule to the same effect), as in effectfrom time to time.
(p) “Salary Points” means the salary points assigned to a Participant by the Committee for the applicable Performance Period pursuant to the Haysalary point system, or any successor salary point system adopted by the Committee.
(q) “Section 162(m)” means Section 162(m) of the Internal Revenue Code of 1986, as amended, or any successor provision.
(r) “Spin-Off Date” means the “Spin-Off Date,” as such term is defined in the 2012 Separation Agreement between NACCO Industries, Inc. andHyster-Yale Materials Handling, Inc.
(s) “Target Award” means a dollar amount calculated by multiplying (i) the designated salary midpoint that corresponds to a Participant's SalaryPoints by (ii) the long-term incentive compensation target percent for those Salary Points for the applicable Performance Period, as determinedby the Committee. The Target Award is the award that would be paid to a Participant under this Plan if each Performance Objective was met.
3. Administration
This Plan shall be administered by the Committee. The Committee shall have complete authority to interpret all provisions of this Plan consistent withlaw, to prescribe the form of any instrument evidencing any Award granted under this Plan, to adopt, amend and rescind general and special rules and regulationsfor its administration (including, without limitation, the Guidelines), and to make all other determinations necessary or advisable for the administration of this Plan.Notwithstanding the foregoing, no such action may be taken by the Committee that would cause any Qualified Performance-Based Awards to be includable as“applicable employee remuneration” of such Participant, as such term is defined in Section 162(m) ( i.e., to no longer qualify for the exception for “qualifiedperformance-based compensation” under Section 162(m)). A majority of the Committee shall constitute a quorum, and the action of members of the Committeepresent at any meeting at which a quorum is present, or acts unanimously approved in writing, shall be the act of the Committee. All acts and decisions of theCommittee with respect to any questions arising in connection with the administration and interpretation of this Plan, including the severability of any or all of theprovisions hereof, shall be conclusive, final and binding upon the Employers and all present and former Participants, all other employees of the Employers, andtheir respective descendants, successors and assigns. No member of the Committee shall be liable for any such act or decision made in good faith.
4. Eligibility
Each Participant shall be eligible to participate in this Plan and receive Awards in accordance with Section 5. The Committee shall have the discretion togrant an Award to a Participant who does not meet the requirements specified in Section 5; provided that no such action may be taken by the Committee that wouldcause any Qualified Performance-Based Awards to be includable as applicable employee remuneration of such Participant, as such term is defined inSection 162(m) ( i.e., to no longer qualify for the exception for “qualified performance-based compensation” under Section 162(m)).
5. Awards
The Committee may, from time to time and upon such conditions as it may determine, authorize the payment of Awards to Participants, which shall beconsistent with, and shall be subject to all of the requirements of, the following provisions:
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(a) The Committee shall approve (i) a Target Award to be granted to each Participant and (ii) a formula for determining the amount of each Award,which formula is based upon the Company's achievement of Performance Objectives; provided, however, that with respect to any Award that isdesignated by the Committee as a Qualified Performance-Based Award, the Committee shall approve the foregoing not later than the 90th day ofthe applicable Performance Period and prior to the completion of 25% of such Performance Period. Each grant shall specify an initial allocationbetween the cash portion of the Award and the equity portion of the Award.
(b) Prior to the end of the Payment Period, the Committee shall approve (i) a preliminary calculation of the amount of each Award based upon theapplication of the formula and actual performance relative to the Target Awards previously determined in accordance with Section 5(a); and (ii)a final calculation of the amount of each Award to be paid to each Participant for the Performance Period. Such approval shall be certified by theCommittee before any amount is paid under any Award with respect to that Performance Period. Notwithstanding the foregoing, the Committeeshall have the power to (1) decrease the amount of any Award below the amount determined in accordance with the foregoing provisions; (2)increase the amount of any Award above the initial amount determined in accordance with the foregoing provisions or adjust the amount thereofin any other manner determined by the Committee in its sole and absolute discretion; and/or (3) adjust the allocation between the cash portion ofthe Award and the equity portion of the Award; provided, however, that (A) no such decrease may occur following a Change in Control and (B)no such increase, change or adjustment may be made that would cause any Qualified Performance-Based Award to be includable as “applicableemployee remuneration” of such Participant, as such term is defined in Section 162(m) ( i.e., to no longer qualify for the exception for“qualified performance-based compensation” under Section 162(m)). No Award, including any Award equal to the Target Award, shall bepayable under this Plan to any Participant except as determined by the Committee.
(c) Calculations of Target Awards for a Performance Period shall initially be based on the Participant's Salary Points as of January 1 st of the firstyear of the Performance Period. However, such Target Awards shall be changed during or after the Performance Period under the followingcircumstances: (i) if a Participant receives a change in Salary Points, salary midpoint and/or long-term incentive compensation target percentageduring a Performance Period, such change shall be reflected in a pro-rata Target Award, (ii) employees hired into or promoted into a positioneligible to participate in the Plan during a Performance Period will be assigned a pro-rated Target Award based on their length of service duringthe Performance Period; provided that the employees have been employed by the Employers for at least 90 days during the Performance Periodand (iii) the Committee may increase or decrease the amount of the Target Award at any time, in its sole and absolute discretion; provided,however, that (X) no such decrease may occur following a Change in Control and (Y) no such increase, adjustment or any other change may bemade that would cause any Qualified Performance-Based Award to be includable as “applicable employee remuneration” of such Participant, assuch term is defined in Code Section 162(m) ( i.e., to no longer qualify for the exception for “qualified performance-based compensation” underCode Section 162(m)). Unless otherwise determined by the Committee (in its sole and absolute discretion), in order to be eligible to receive anAward for a Performance Period, the Participant must be employed by an Employer and must be a Participant on December 31 st of the last yearof the Performance Period. Notwithstanding the foregoing, if a Participant dies, becomes disabled or Retires during the Performance Period, theParticipant shall be entitled to a pro-rata portion of the Award for such Performance Period, calculated based on actual performance for the entirePerformance Period and the number of days the Participant was actually employed by the Employers during the Performance Period.
(d) Each Award shall be fully paid during the Payment Period and shall be paid partly in cash and partly in Award Shares. Notwithstanding theforegoing, the Committee, in its sole and absolute discretion, may require that an Award that is payable to a Non U.S. Participant may be paidfully in cash. The number of Award Shares to
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be issued to a Participant shall be determined by dividing the equity portion of the Award by the Average Award Share Price (subject toadjustment as described in Subsection (b) above). The Company shall pay any and all brokerage fees and commissions incurred in connectionwith any purchase by the Company of shares which are to be issued as Award Shares and the transfer thereto to Participants. Awards shall bepaid subject to all withholdings and deductions pursuant to Section 6. Notwithstanding any other provision of this Plan, the maximum amountpaid to a Participant in a single calendar year as a result of Awards under this Plan shall not exceed the greater of (i) $12,000,000 or (ii) the fairmarket value of 50,000 Award Shares, determined at the time of payment.
(e) At such time as the Committee approves a Target Award and formula for determining the amount of each Award, the Committee shall designatewhether all or any portion of the Award is a Qualified Performance-Based Award.
6. Withholding Taxes/Offsets
(a) To the extent that an Employer is required to withhold federal, state or local taxes in connection with any Award paid to a Participant under thisPlan, and the amounts available to the Employer for such withholding are insufficient, it shall be a condition to the receipt of such Award thatthe Participant make arrangements satisfactory to the Company for the payment of the balance of such taxes required to be withheld, whicharrangements (in the discretion of the Committee) may include relinquishment of a portion of such Award. The Company and a Participant mayalso make similar arrangements with respect to the payment of any other taxes derived from or related to the Award with respect to whichwithholding is not required.
(b) If, prior to the payment of any Award, it is determined by an Employer, in its sole and absolute discretion that any amount of money is owed bythe Participant to the Employer, the Award otherwise payable to the Participant may be reduced in satisfaction of the Participant's debt to suchEmployer. Such amount(s) owed by the Participant to the Employer may include, but is not limited to, the unused balance of any cash advancespreviously obtained by the Participant, or any outstanding credit card debt incurred by the Participant.
7. Change in Control
(a) The following provisions shall apply notwithstanding any other provision of this Plan to the contrary.
(b) AmountofAwardforYearofChangeInControl. In the event of a Change in Control during a Performance Period, the amount of the Awardpayable to a Participant who is employed by an Employer on the date of the Change in Control (or who died, become permanently disabled orRetired during such Performance Period and prior to the Change in Control) for such Performance Period shall be equal to the Participant'sTarget Award for such Performance Period, multiplied by a fraction, the numerator of which is the number of days during the PerformancePeriod during which the Participant was employed by the Employers prior to the Change in Control and the denominator of which is the numberof days in the Performance Period.
(c) TimeofPayment. In the event of a Change in Control, the payment date of all outstanding Awards (including, without limitation, the pro-rataTarget Award for the Performance Period during which the Change in Control occurred) shall be the date that is between two days prior to, orwithin 30 days after, the date of the Change in Control, as determined by the Committee in its sole and absolute discretion.
8. Award Shares Terms and Restrictions
(a) Award Shares granted to a Participant shall entitle such Participant to voting, dividend and other ownership rights. Each payment of AwardShares shall be evidenced by an agreement executed on behalf of the Company by an authorized officer and delivered to and accepted by suchParticipant. Each such agreement
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shall contain such terms and provisions, consistent with this Plan, as the Committee may approve, including, without limitation, prohibitions andrestrictions regarding the transferability of Award Shares.
(b) Except as otherwise set forth in this Section, Award Shares shall not be assigned, transferred, exchanged, pledged, hypothecated or encumbered(a "Transfer") by a Participant or any other person, voluntarily or involuntarily, other than a Transfer of Award Shares (i) by will or the laws ofdescent and distribution, (ii) pursuant to a domestic relations order meeting the definition of a qualified domestic relations order underSection 206(d)(3)(B) of the Employee Retirement Income Security Act of 1974, as amended (“QDRO”), (iii) to a trust for the benefit of aParticipant or his spouse, children or grandchildren (provided that Award Shares transferred to such trust shall continue to be Award Sharessubject to the terms of this Plan) or (iv) with the consent of the Committee, after the substitution by a Participant of a number of shares of ClassA or Class B Common Stock of the Company (the "New Shares") for an equal number of Award Shares, whereupon the New Shares shallbecome and be deemed for all purposes to be Award Shares, subject to all of the terms and conditions imposed by this Plan and the Guidelineson the shares for which they are substituted, including the restrictions on Transfer, and the restrictions hereby imposed on the shares for whichthe New Shares are substituted shall lapse and such shares shall no longer be subject to this Plan or the Guidelines. The Company shall nothonor, and shall instruct the transfer agent not to honor, any attempted Transfer and any attempted Transfer shall be invalid, other than Transfersdescribed in clauses (i) through (iv) above.
(c) Each Award shall provide that a Transfer of the Award Shares shall be prohibited or restricted for a period of ten years from the last day of thePerformance Period, or such other shorter or longer period as may be determined by the Committee (in its sole and absolute discretion) fromtime to time. Notwithstanding the foregoing, such restrictions shall automatically lapse on the earliest of (i) the date the Participant dies orbecomes permanently disabled, (ii) five years (or earlier with the approval of the Committee) after the Participant Retires, (iii) an extraordinaryrelease of restrictions pursuant to Subsection (d) below, or (iv) a release of restrictions as determined by the Committee in its sole and absolutediscretion (including, without limitation, a release caused by a termination of this Plan). Following the lapse of restrictions pursuant to thisSubsection or Subsection (d) below, the shares shall no longer be “Award Shares” and, at the Participant's request, the Company shall take allsuch action as may be necessary to remove such restrictions from the stock certificates, or other applicable records with respect to uncertificatedshares, representing the Award Shares, such that the resulting shares shall be fully paid, nonassessable and unrestricted by the terms of this Plan.
(d) Extraordinary Release of Restrictions .
(i) A Participant may request in writing that a Committee member authorize the lapse of restrictions on a Transfer of such Award Shares ifthe Participant desires to dispose of such Award Shares for (A) the purchase of a principal residence for the Participant, (B) payment ofmedical expenses for the Participant, his spouse or his dependents, (C) payment of expenses for the education of the Participant, hisspouse or his dependents for the next 18 months or (iv) any other extraordinary reason which the Committee has previously approved inwriting The Committee shall have the sole power to grant or deny any such request. Upon the granting of any such request, theCompany shall cause the release of restrictions in the manner described in Subsection (c) on such number of Award Shares as theCommittee shall authorize.
(ii) A Participant who is employed by the Employers may request such a release at any time following the third anniversary of the date theAward Shares were issued; provided that the restrictions on no more than 20% of such Award Shares may be released pursuant to thisSubsection (d). A Participant who is no longer employed by the Employers may request such a release at any time following the
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second anniversary of the date the Award Shares were issued; provided that the restrictions on no more than 35% of such Award Sharesmay be released pursuant to this Subsection (d).
(e) Legend . The Company shall cause an appropriate legend to be placed on each certificate, or other applicable records with respect touncertificated shares, for the Award Shares, reflecting the foregoing restrictions.
9. Amendment, Termination and Adjustments
(a) The Committee, subject to approval by the Board of Directors of the Company, may alter or amend this Plan from time to time or terminate it inits entirety; provided, however, that no such action shall, without the consent of a Participant, affect the rights in (i) an outstanding Award of aParticipant that was previously approved by the Committee for a Performance Period but has not yet been paid or (ii) any Award Shares thatwere previously issued to a Participant under this Plan. Unless otherwise specified by the Committee, all Award Shares that were issued prior tothe termination of this Plan shall continue to be subject to the terms of this Plan following such termination; provided that the Transferrestrictions on such Shares shall lapse as otherwise provided in Section 8.
(b) The Committee may make or provide for an adjustment in (A) the total number of Award Shares to be issued under this Plan specified inSection 10 or (B) the definition of Average Award Share Price as the Committee in its sole discretion, exercised in good faith, may determine isequitably required to reflect (i) any stock dividend, stock split, combination of shares, recapitalization or any other change in the capital structureof the Company, (ii) any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or otherdistribution of assets, issuance of rights or warrants to purchase securities, or (iii) any other corporate transaction or event having an effectsimilar to any of the foregoing (collectively, the “Extraordinary Events”). Any securities that are distributed in respect to Award Shares inconnection with any of the Extraordinary Events shall be deemed to be Award Shares and shall be subject to the Transfer restrictions set forthherein to the same extent and for the same period as if such securities were the original Award Shares with respect to which they were issued,unless such restrictions are waived or otherwise altered by the Committee.
(c) Notwithstanding the provisions of Subsection (a) or Subsection (b), without further approval by the stockholders of the Company, no such actionshall (i) increase the maximum number of Award Shares to be issued under this Plan specified in Section 10 (except that adjustments andadditions expressly authorized by this Section shall not be limited by this clause (i)), (ii) cause Rule 16b-3 to become inapplicable to this Plan or(iii) cause any amount of any Qualified Performance-Based Award to be includable as “applicable employee remuneration” of such Participant,as such term is defined in Section 162(m) ( i.e., to no longer qualify for the exception for “qualified performance-based compensation” underSection 162(m)).
10. Award Shares Subject to Plan
Subject to adjustment as provided in this Plan, the total number of shares of Class A Common Stock that may be issued as Award Shares under this Planshall be 750,000.
11. Approval by Stockholders
This Plan will be submitted for approval by the stockholders of the Company. If such approval has not been obtained by July 1, 2013, all grants of TargetAwards made on or after January 1, 2013 for Performance Periods beginning on or after January 1, 2013 will be rescinded.
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12. General Provisions
(a) NoRightofEmployment. Neither the adoption or operation of this Plan, nor any document describing or referring to this Plan, or any partthereof, shall confer upon any employee any right to continue in the employ of the Employers, or shall in any way affect the right and power ofthe Employers to terminate the employment of any employee at any time with or without assigning a reason therefor to the same extent as theEmployers might have done if this Plan had not been adopted.
(b) GoverningLaw. The provisions of this Plan shall be governed by and construed in accordance with the laws of the State of Delaware.
(c) Miscellaneous. Headings are given to the sections of this Plan solely as a convenience to facilitate reference. Such headings, numbering andparagraphing shall not in any case be deemed in any way material or relevant to the construction of this Plan or any provisions thereof. The useof the masculine gender shall also include within its meaning the feminine. The use of the singular shall also include within its meaning theplural, and vice versa.
(d) LimitationonRightsofEmployees.NoTrust. No trust has been created by the Employers for the payment of Awards under this Plan; nor havethe employees been granted any lien on any assets of the Employers to secure payment of such benefits. This Plan represents only an unfunded,unsecured promise to pay by the Company and a participant hereunder is a mere unsecured creditor of the Company.
(e) Non-transferabilityofAwards.Awards shall not be transferable by a Participant. Award Shares paid pursuant to an Award shall be transferable,subject to the restrictions described in Section 8.
(f) Section409AoftheInternalRevenueCode. This Plan is intended to be exempt from the requirements of Section 409A of the Internal RevenueCode of 1986, as amended, and applicable Treasury Regulations issued thereunder, and shall be administered in a manner that is consistent withsuch intent.
13. Effective Date
This Plan shall be effective as of, and contingent upon, the Spin-Off Date.
Appendix 1. Change in Control.
Change in Control . The term “Change in Control” shall mean the occurrence of (i), (ii) or (iii) below; provided that such occurrence occurs onor after the Spin-Off Date and meets the requirements of Treasury Regulation Section 1.409A-3(i)(5) (or any successor or replacement thereto)with respect to a Participant:
i. Any “Person” (as such term is used in Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)), other than one or more Permitted Holders, is or becomes the “beneficial owner”(as defined in Rules 13d-3 and 13d-5 of theExchange Act), directly or indirectly, of more than 50% of the combined voting power of the then outstanding voting securities ofHyster-Yale Materials Handling, Inc. (“HY”), other than any direct or indirect acquisition, including but not limited to an acquisition bypurchase, distribution or otherwise, of voting securities:
(A) directly from HY that is approved by a majority of the Incumbent Directors (as defined below); or
(B) by any Person pursuant to an Excluded HY Business Combination (as defined below);
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provided,that if at least a majority of the individuals who constitute Incumbent Directors determine in good faith that a Person hasbecome the “beneficial owner”(as defined in Rules 13d-3 and 13d-5 of the Exchange Act) of more than 50% of the combined votingpower of the outstanding voting securities of HY inadvertently, and such Person divests as promptly as practicable a sufficient numberof shares so that such Person is the “beneficial owner”(as defined in Rules 13d-3 and 13d-5 of the Exchange Act) of 50% or less of thecombined voting power of the outstanding voting securities of HY, then no Change in Control shall have occurred as a result of suchPerson's acquisition; or
ii. a majority of the Board of Directors of HY ceases to be comprised of Incumbent Directors; or
iii. the consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of HYor the acquisition of assets of another corporation, or other transaction involving HY (“HY Business Combination”) excluding,however, such a Business Combination pursuant to which both of the following apply (such a Business Combination, an “Excluded HYBusiness Combination”):
(A) the individuals and entities who beneficially owned, directly or indirectly, HY immediately prior to such HY Business Combinationbeneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities of theentity resulting from such HY Business Combination (including, without limitation, an entity that as a result of such transactionowns HY or all or substantially all of the assets of HY, either directly or through one or more subsidiaries); and
(B) at the time of the execution of the initial agreement, or of the action of the Board of Directors of HY, providing for such HYBusiness Combination, at least a majority of the members of the Board of Directors of HY were Incumbent Directors.
III . Definitions. The following terms as used herein shall be defined as follow:
1. “ Incumbent Directors ” means the individuals who, as of the Spin-Off Date, are Directors of HY and any individual becoming a Directorsubsequent to such date whose election, nomination for election by HY's stockholders, or appointment, was approved by a vote of atleast a majority of the then Incumbent Directors (either by a specific vote or by approval of the proxy statement of HY in which suchperson is named as a nominee for director, without objection to such nomination); provided , however , that an individual shall not bean Incumbent Director if such individual's election or appointment to the Board of Directors of HY occurs as a result of an actual orthreatened election contest (as described in Rule 14a‑12(c) of the Exchange Act) with respect to the election or removal of directors orother actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors of HY.
2. “ Permitted Holders ” shall mean, collectively, (i) the parties to the 2012 Stockholders' Agreement, as amended from time to time, by andamong the “Depository”, the “Participating Stockholders” (both as defined therein) and HY; provided, however, that for purposes ofthis definition only, the definition of Participating Stockholders contained in the Stockholders' Agreement shall be such definition ineffect on the date of the Change in Control, (ii) any direct or indirect subsidiary of HY and (iii) any employee benefit plan (or relatedtrust) sponsored or maintained by HY or any direct or indirect subsidiary of HY.
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Exhibit 10.23
HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES Director Fee Policy (Amended Effective as of January 1, 2018)
This Director fee policy shall apply to each Director of Hyster-Yale Materials Handling, Inc. (Hyster-Yale) or one of its subsidiaries, other than (i) Directors who
are full-time employees of Hyster-Yale or one of its subsidiaries or (ii) Directors who have entered into separate written fee agreements authorized by the Board of
Directors and executed by an authorized officer of Hyster-Yale or one of its subsidiaries.
Each Director of Hyster-Yale will receive an annual retainer, of $173,000, payable quarterly in arrears. Each quarterly payment shall consist of $15,000 in cash and
$28,250 worth of Hyster-Yale Class A Common Stock, transfer of which is restricted pursuant to the terms of the Hyster-Yale Non-Employee Directors’ Equity
Compensation Plan.
Each Director of Hyster-Yale Group, Inc. who is not a Director of Hyster-Yale will receive an annual retainer of $20,000, payable in cash quarterly in arrears in
installments of $5,000.
Each Chairman of a Committee of the Hyster-Yale Board of Directors will receive an additional annual Committee Chairman’s fee of $10,000, payable in cash
quarterly in arrears in installments of $2,500; provided, however, that the Chairman of the Audit Review Committee will receive an annual Committee Chairman’s
fee of $15,000, payable in cash quarterly in arrears in installments of $3,750. 100% of all fees paid for service as Chairman of a Committee is attributable to
services for Hyster-Yale Group, Inc. and its subsidiaries.
Each member of a Committee (other than the Executive Committee) of the Hyster-Yale Board of Directors, including Committee Chairmen, will receive an
additional annual Committee member’s fee of $7,000 for each Committee on which such Director serves, payable in cash quarterly in arrears in installments of
$1,750. 100% of all fees paid for service as a member of a Committee is attributable to services for Hyster-Yale Group, Inc. and its subsidiaries.
Each Director of Hyster-Yale or a Hyster-Yale subsidiary will be paid a meeting fee of (a) $1,000 for each Hyster-Yale or subsidiary Board meeting attended,
provided that no Director shall be paid for attendance at more than one Board meeting on any single day, and (b) $1,000 for each Committee meeting attended. In
the case of either joint meeting or joint committee meetings, the fees associated with that meeting will be allocated among the companies that actually met.
This amended policy is effective as of January 1, 2018
Director Fee Policy(Effective As of January 1, 2017)
Exhibit 10.28
AMENDMENT TO THIRD AMENDED AND RESTATED
OPERATING AGREEMENT
This Amendment is dated and effective as of January 1, 1994 and relates to the Third Amended and Restated Operating Agreement dated as of November 21,1985, as amended and restated as of December 19, 1985 and as further amended and interpreted, between Hyster Company, an Oregon corporation and HysterCredit Company, a division of AT&T Commercial Finance Corporation, a Delaware corporation ("Operating Agreement").
RECITALS
Effective January 1, 1994, Hyster Company merged with a Delaware corporation of the same name and the name of the surviving corporation was changed toNACCO Materials Handling Group, Inc. ("NMHG"). As of the effective date of this Amendment and thereafter, NMHG will do business on its own behalf andunder the assumed business names of Hyster Company and Yale Materials Handling Corporation.
Hyster Company and Hyster Credit Company desire to amend the Operating Agreement to reflect this reorganization while retaining all the rights and obligationsof each party under the Operating Agreement.
AGREEMENT
In consideration of the foregoing, Hyster Company and Hyster Credit Company agree as follows:1- On and after the effective date of this Amendment, when used in the Operating Agreement the term "Hyster" shall mean NMHG and NMHG doing business asHyster Company and the term "NMHG" is substituted for the term "Hyster" everywhere that it appears in the Operating Agreement.
2- On and after the effective date of this Amendment, when used in the Operating Agreement the term "Equipment" shall mean new fork lift trucks and units ofother construction and industrial equipment manufactured or distributed by NMHG that bear Hyster Company trademarks or insignia, together with othermanufacturer's new equipment sold in conjunction with the above-described equipment, plus accessories and attachments therefor, except that (i) in connectionwith and for purposes of Rental Fleet Transportation and (ii) for purposes of Article IV, "Equipment" shall not include and there is expressly excluded therefromany new fork lift trucks and units of other construction and industrial equipment manufactured or distributed by NMHG that bear Yale Materials HandlingCorporation trademarks or insignia, nor shall it include other manufacturer's new equipment sold in conjunction with such Yale trademarked equipment oraccessories and attachments therefor.
3- All notices issued under Section 12.8 of the Operating Agreement shall be sufficient if issued to NMHG at the following address:
NACCO Materials Handling Group, Inc.2701 NW Vaughn, Suite 900Portland, OR 97210Attn: Vice President, General Counseland Secretary
and to Credit Company at both of the following addresses:
AT&T Commercial Finance Corporation222 SW Columbia, Suite 800Portland, OR 97201-6618Attn: Operations Manager
andAT&T Commercial Finance CorporationThe Corporate Center550 Cochituate Rd.P.O. Box 9104Farmingham, MA 01701Attn: Chief Counsel
Except as expressly amended and restate herein, the Operating Agreement shallremain in full force and effect in accordance with its terms.
Agreed to and signed on due authority as of the day and year first writtenabove.
HYSTER CREDIT COMPANY, a division ofAT&T COMMERCIAL FINANCE CORPORATION
By /c/Bradley D. Johnson
Title Vice President
HYSTER COMPANY
By /c/B. I. BullVice President, Corporate AdministrationTitle General Counsel & Secretary
NACCO MATERIALS HANDLING GROUP, INC.
By /c/B. I. BullVice President, GeneralTitle Counsel & Secretary
Exhibit 10.57
________________________________________________
EQUITY TRANSFER AGREEMENT
______________________________________________
By and Between
KNSN PIPE & PILE COMPANY LIMITED
And
HYSTER-YALE ACQUISITION HOLDING LTD
Regarding
ZHEJIANG MAXIMAL FORKLIFT CO., LTD.
Dated December 6, 2017
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Page No.
ARTICLE I DEFINITIONS 1SECTION 1.1 DEFINED TERMS 1
SECT ION 1.2 ADDITIONAL DEFINITIONS 9
ARTICLE II THE PARTIES TO THE EQUITY TRANSFER 9SECTION 2.1 SELLER 9SECTION 2.2 BUYER 9
ARTICLE III TRANSFER OF EQUITY INTEREST AND PURCHASE PRICE 10SECTION 3.1 PURCHASE AND SALE OF EQUITY INTEREST 10SECTION 3.2 PURCHASE PRICE 10SECTION 3.3 PAYMENT OF THE PURCHASE PRICE 10
ARTICLE IV APPROVALS AND REGISTRATION 11SECTION 4.1 BOARD RESOLUTION AND SHAREHOLDER RESOLUTION 11SECTION 4.2 WAIVER OF RIGHT OF FIRST REFUSAL; SHAREHOLDERS AGREEMENT 11SECTION 4.3 BOARD OF DIRECTORS 12SECTION 4.4 MOFCOM FILING 12SECTION 4.5 SAIC REGISTRATION 12SECTION 4.6 SAFE REGISTRATION 13SECTION 4.7 OTHER REGISTRATIONS 13
ARTICLE V REPRESENTATIONS AND WARRANTIES 13SECTION 5.1 REPRESENTATIONS AND WARRANTIES OF BUYER 13SECTION 5.2 REPRESENTATIONS AND WARRANTIES OF SELLER 14
ARTICLE VI COVENANTS AND POST-SIGNING ARRANGEMENT 27SECTION 6.1 COVENANTS FOR THE INTERIM PERIOD 27
SECT ION 6.2 THE REMAINING EQUITY INTEREST OF THE TARGET COMPANY 29SECTION 6.3 TRANSFER OF SAMUK 30SECTION 6.4 CARVE-OUT OF SHENZHEN MAXIMAL AND SHANGHAI MAXIMAL 30SECTION 6.5 INTERCOMPANY INDEBTEDNESS 31SECTION 6.6 RELATED AND THIRD PARTY GUARANTEES 31SECTION 6.7 ADOPTION OF COMPLIANCE CONTROL MEASURES 32SECTION 6.8 CERTAIN TAX MATTERS 33SECTION 6.9 EMPLOYMENT CONTRACTS 34SECTION 6.10 RESPONSIBILITIES TO FACILITATE THE CLOSING 34SECTION 6.11 TRANSACTION DOCUMENTS 34SECTION 6.12 LEASED LAND 35SECTION 6.13 EHS COVENANTS 35
SE CTION 6.14 SELLER’S LETTER OF GUARANTEE 36
ARTICLE VII CLOSING 36SECTION 7.1 CONDITIONS PRECEDENT TO CLOSING 36SECTION 7.2 CLOSING 38
VIII POST-CLOSING UNDERTAKINGS39SECTION 8.1 ADJUSTMENT TO PURCHASE PRICE 39SECTION 8.2 NON-SOLICITATION 41SECTION 8.3 NON-COMPETITION 42SECTION 8.4 RELEASE OF ESCROW AMOUNT 42SECTION 8.5 ACQUISITION OF HYSTER-YALE SHANGHAI OPERATION 45
ARTICLE IX EXPENSES AND TAX 45SECTION 9.1 EXPENSES AND TAX 45
ARTICLE X INDEMNITY AND LIABILITY 45SECTION 10.1 INDEMNITY 45SECTION 10.2 DEFENSE AGAINST THIRD-PARTY CLAIMS 48SECTION 10.3 NO WAIVER 48
E XI APPLICABLE LAW AND DISPUTE RESOLUTION48SECTION 11.1 APPLICABLE LAW 48SECTION 11.2 DISPUTE RESOLUTION 48
ARTICLE XII GENERAL PROVISIONS 49SECTION 12.1 EFFECTIVENESS AND TERMINATION 49SECTION 12.2 AMENDMENT AND MODIFICATION OF THIS AGREEMENT 50SECTION 12.3 ASSIGNMENT AND SUCCESSION 50SECTION 12.4 SEVERABILITY 51SECTION 12.5 CONFIDENTIALITY 51SECTION 12.6 LANGUAGE 51SECTION 12.7 ENTIRE AGREEMENT 51SECTION 12.8 COUNTERPARTS 52SECTION 12.9 HEADINGS 52SECTION 12.10 FORCE MAJEURE 52SECTION 12.11 NOTICE 52
LIST OF APPENDICES AND SCHEDULES 55
This EQUITY TRANSFER AGREEMENT (this “ Agreement ”) is entered into as of December 6, 2017 (“ Execution Date ”) inthe People’s Republic of China (“ PRC ” or “ China ”) by and between:
(1) KNSN PIPE & PILE COMPANY LIMITED , a limited liability company incorporated and existing under the laws of thePRC with its legal address at Jiang Jia Village, Lu Shan Street, Fuyang District, Hangzhou City, Zhejiang Province, China (“Seller ”); and
(2) HYSTER-YALE ACQUISITION HOLDING LTD , a corporation incorporated and existing under the laws of Englandand Wales, with its registered address at Centennial House, Building 4.5, Frimley Business Park, Frimley, Surrey GU16 7SG,UK (“ Buyer ”).
Seller and Buyer are hereinafter collectively referred to as the “ Parties ” and individually as a “ Party ”.
RECITALS
WHEREAS , Zhejiang Maximal Forklift Co., Ltd. (the “ Target Company ”) is a limited liability company incorporated andexisting under the laws of PRC, with its legal address at Jiang Jia Village, Lu Shan Street, Fuyang District, Hangzhou City, ZhejiangProvince, China;
WHEREAS , Seller owns seventy-five percent (75%) equity interest in the Target Company;
WHEREAS, Seller has agreed to sell to Buyer, and Buyer has agreed to purchase from Seller, all the equity interest owned by Sellerin the Target Company on the terms and conditions stipulated in this Agreement;
NOW, THEREFORE , after friendly consultations conducted in accordance with the principles of equality and mutual benefit andin consideration of the premises and the mutual agreements and covenants hereinafter set forth, the Parties hereby have agreed toenter into this Agreement as follows:
ARTICLE I DEFINITIONS
Section 1.1 Defined Terms
Unless otherwise provided in this Agreement and the attached appendices, the following terms shall have the following meanings:
“ Affiliate ” means a corporation, partnership, trust or entity in other forms that directly or indirectly controls, is controlled by, or isunder common control with a Party. For purposes of this Agreement, “control” means direct or indirect ownership of more than fiftypercent (50%) of the shares, registered capital or voting rights of an entity, or the power to direct the management and decision-making of an entity (including without limitation, the power to appoint or to remove the senior management personnel of suchentity), whether by equity ownership or agreement or otherwise.
“ Amended AOA ” means the amendments (or an amended and restated version) of Articles of Association of the Target Companyto be signed by Buyer and Holding Co as soon as practical after the Execution Date and duly approved by the shareholders of theTarget Company pursuant to Sections 4.1 and 4.2 herein, substantially in the form attached hereto as Appendix C .
“Anti-Corruption Laws” means, collectively, as amended from time to time (i) the U.S. Foreign Corrupt Practices Act of 1977,and the rules and regulations promulgated thereunder,; (ii) the People’s Republic of China’s anti-corruption laws and regulationsincluding but not limited to the Criminal Law, the Anti-Unfair Competition Law and the Interim Provisions on Banning CommercialBribery; and (iii) the UK Bribery Act 2010, and the rules and regulations promulgated thereunder; and (iv) all other anti-corruptionlaws, regulations, rules, orders, decrees, or other directives carrying the force of law applicable to the Target Company or anyactivities engaged in by the Target Company. For purpose of this Agreement, “Anti-Corruption Laws” referred to under Section 5.2herein shall not include items (i) and (iii) in this definition (i.e., shall not include the U.S. Foreign Corrupt Practices Act of 1977 andthe UK Bribery Act 2010), but “Anti-Corruption Laws” referred to in all other sections of this Agreement shall include the entiredefinition of “Anti-Corruption Laws” above. The Parties agree that when this Agreement describes an obligation to comply with theAnti-Corruption Laws, this shall mean that for purposes of this Agreement, the relevant Person or Party shall comply with all theAnti-Corruption Laws as if all the Anti-Corruption Laws applied directly to the relevant Person or Party. However, the Parties agreethat this Agreement shall govern only the rights and obligations between the Parties, and shall not constitute or be construed as awaiver of any valid jurisdictional defence that the Party may otherwise raise when defending against an enforcement actionundertaken by a relevant governmental authority.
“ Assets ” means all the asset of the Target Company, including, without limitation, all of the tangible and intangible assets, Sitesand other land, buildings, equipment, and all accounts receivable, inventory and Intellectual Property owned, leased or being used bythe Target Company.
“ Business Day ” means any day that is not a Saturday, Sunday, or statutory holiday of the PRC or US, or any other day on whichcommercial banks are required or authorized by law to be closed in the PRC, Hong Kong or US.
“ Business License Date ” shall have the meaning set forth in Section 4.5(a).
“ Buyer’s Indemnitees ” shall have the meaning set forth in Section 10.1(a).
“ Buyer Warranties ” shall have the meaning set forth in Section 5.1.
“ Books and Records ” means all books, records, documents, account books, sales and credit reports, supplier lists, customer lists,distributor lists, manuals, catalogs, brochures, advertising material and the like that are used in the business of the Target Company.
“ CAI ” shall have the meaning set forth in Section 5.2(m)(iii).
“ Carve-Out ” shall have the meaning set forth in Section 6.4(a).
“ Closing ” means the consummation of the Equity Transfer contemplated hereunder in accordance with this Agreement.
“ Closing Cash Amounts ” shall have the meaning set forth in Section 8.1(a).
“ Closing Confirmation ” shall have the meaning set forth in Section 7.2(a).
“ Closing Date ” means the date on which the Closing takes place pursuant to relevant provision of this Agreement, as furtherdefined under Section 7.2(c).
“ Closing Debt Amounts ” shall have the meaning set forth in Section 8.1(a).
“ Closing Working Capital ” shall have the meaning set forth in Section 8.1(a).
“ Compliance Audit ” shall have the meaning set forth in Section 6.7(b).
“ Compliance Measures ” shall have the meaning set forth in Section 6.7(a).
“ Confidential Information ” means the terms and conditions of this Agreement, any discussions, presentations, reports, term sheetor memorandum of understanding entered into pursuant to the transactions contemplated hereby, all appendices and schedulesattached hereto and thereto, the transactions contemplated hereby and thereby, including their existence, and all informationfurnished by any Party hereto and by representatives of such Parties to any other Party hereof or any of the representatives of suchParties.
“ Contract ” means, as to any Person, any provision of any security issued by such Person or any oral or written contract,agreement, undertaking, understanding, indenture, note, bond, loan, instrument, lease, mortgage, deed of trust, franchise, or licenseto which such Person is a party or by which such Person or any of its property is bound.
“ Corporate Changes ” shall have the meaning set forth in Section 4.5(a).
“ CPs ” shall have the meaning set forth in Section 7.1.
“ Disclosure Schedules ” shall have the meaning set forth in Section 5.2.
“ Dispute Notice ” shall have the meaning set forth in Section 8.1(c).
“ Dispute Resolution Period ” shall have the meaning set forth in Section 8.1(c).
“ EHS ” means environmental, health and safety.
“ EHS Permits ” shall have the meaning set forth in Section 5.2(m)(iii).
“ EIA ” shall have the meaning set forth in Section 5.2(m)(iii).
“ Employee Liabilities ” shall have the meaning set forth in Section 5.2(r)(iii).
“ Employment Contract ” means the employment contracts to be entered into on or before the Closing Date between the TargetCompany and each of Jinhong Lu, Barry Su, Liexin Zhu and other individuals as the Parties may agree upon, substantially in theform attached hereto as Appendix D .
“ Encumbrance ” means any interest of any Person (including, without limitation, any right to acquire, option or right of pre-emption) and any charge, mortgage, title defect, security interest, pledge, lien, assignment, power of sale, or any rental, hire,purchase, conditional sale or other agreement for payment on deferred terms or any other third party right or encumbrance of anynature whatsoever (whether or not perfected) and the term “encumber” shall be construed accordingly.
“ Entity Classification Election ” shall have the meaning set forth in Section 6.8(c)(i).
“ Entity Classification Election Forms ” shall have the meaning set forth in Section 6.8(c)(i).
“ Environmental Authority ” means the PRC Ministry of Environmental Protection or its authorized local division empowered toapprove, assess or register the operation of the Target Company and any other relevant matters contemplated hereunder, includingbut not limited to the local Department of Environmental Impact Assessment and the local Environmental Protection Bureau.
“ Environmental Law ” means any and all applicable Laws, authorization by any Governmental Authority, or any otherrequirement of any Governmental Authority relating to (i) environmental matters, (ii) the generation, use, storage, transportation ordisposal of Hazardous Substances, or (iii) occupational safety and health, industrial hygiene, land use or the protection of human,plant or animal health or welfare, in any manner applicable to the Target Company.
“ Equity Interest ” shall have the meaning set forth in Section 3.1(a).
“ Equity Transfer ” shall have the meaning set forth in Section 3.1(a).
“ Escrow Agreement ” means the three-party escrow agreement signed by Seller, Buyer and a bank prior to the Closing Date inaccordance with Section 3.3(b).
“ Escrow Account ” shall have the meaning set forth in Section 3.3(b).
“ Escrow Amount ” shall have the meaning set forth in Section 3.3(b).
“ Execution Date ” means the date on which this Agreement is signed by all Parties as specified on the first page of this Agreement.
“ Final Purchase Price ” shall have the meaning set forth in Section 8.1(d).
“ First Installment ” shall have the meaning set forth in Section 3.3(a).
“ Force Majeure Event ” shall have the meaning set forth in Section 12.10.
“ Foreign Exchange Certificate ” shall have the meaning set forth in Section 4.6(b).
“ Governmental Authority ” shall have the meaning set forth in Section 5.2(k)(iii).
“ Government Official ” shall have the meaning set forth in Section 5.2(k)(iii).
“ Hazardous Substances ” means (but shall not be limited to) substances that are defined or listed in, or otherwise classifiedpursuant to, any PRC Environmental Laws as “hazardous substances,” “hazardous materials,” “hazardous wastes” or “toxicsubstances,” or any other formulation intended to define, list or classify substances by reason of deleterious properties such asignitibility, corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity or “EP toxicity,” as well as petroleum and allderivatives thereof or synthetic substitutes therefore, and asbestos or asbestos-containing materials.
“ HKIAC ” shall have the meaning set forth in Section 11.2(b).
“ HNTE Qualifications ” shall have the meaning set forth in Section 5.2(j)(ii).
“ Holding Co ” shall have the meaning set forth in Section 6.2(a).
“ HYG ” means Hyster-Yale Group, the group company and controlling entity of Buyer.
“ HY Component Supply Agreement ” means the component supply agreement to be agreed on or entered into between HYG (orits designated Affiliate) and the Target Company on or prior to the Closing Date with regard to the supply of components, parts andmaterials manufactured by HYG or its designated Affiliate to the Target Company.
“ Immediate Family Members ” means an individual’s spouse, parents, children, parents-in-law, siblings (whether biological ornon-biological) and siblings-in law (whether biological or non-biological);
“ Indebtedness ” means both financial debt and certain non-recurrent liabilities and/or contingencies, including but not limited to (a)all indebtedness for borrowed money, (b) any other indebtedness which is evidenced by a note, bond, debenture or similarinstrument, (c) all capital lease obligations, (d) all indebtedness secured by a lien that is a mortgage, pledge or other security interestthat secures a borrowing, (e) all obligations guaranteed by the Target Company, (f) any unsettled intercompany non-trade liability,(g) any capital expenditure commitments, (h) any accruals and provisions in respect of any redundancy plan, (h) contingent liabilities(including but not limited to contingencies related to employee liabilities, potential product claims, litigations, etc.), and (j) allaccrued and unpaid interest and pre-payment fees or penalties in respect of the foregoing.
“ Independent Acocunting Firm ” shall have the meaning set forth in Section 8.1(c).
“ Intellectual Property ” means, with respect to intellectual property of the Target Company and intellectual property used inconnection with the Target Company, any and all (i) patents, all patent rights and all applications therefore and all reissues,reexaminations, continuations, continuations-in-part, divisions, and patent term extensions thereof, (ii) inventions (whetherpatentable or not), discoveries, improvements, concepts, innovations and industrial models, (iii) registered and unregisteredcopyrights, copyright registrations and applications, author’s rights and works of authorship (including artwork of any kind andsoftware of all types in whatever medium, inclusive of computer programs, source code, object code and executable code, andrelated documentation), (iv) URLs, web sites, web pages and any part thereof, (v) technical information, know-how, trade secrets,drawings, designs, design protocols, specifications for parts and devices, quality assurance and control procedures, design tools,manuals, research data concerning historic and current research and development efforts, including the results of successful andunsuccessful designs, databases and proprietary data, (vi) proprietary processes, technology, engineering, formulae, algorithms andoperational procedures, (vii) trade names, trade dress, trademarks, domain names, and service marks, and registrations andapplications therefor, and (viii) goodwill symbolized or represented by the foregoing, customer lists and other proprietaryinformation.
“ Interim Period ” means the period from the Execution Date until the Closing Date.
“ Knowledge ” means, with respect to any Person (including but not limited to the Target Company or Seller), (i) the actualknowledge of such Person (in the case of an entity or organization, such Person’s executive officers, directors, senior managementand such individuals of the Person’s Affiliates) and (ii) the knowledge as would reasonably be expected to be known by such Person(in the case of an entity or organization, such Person’s executive officers, directors, senior management and such individuals of thePerson’s Affiliates), after making such due inquiry as a prudent business person would have made or exercised in the management ofhis or her business affairs.
“ KNSN Receivable ” shall have the meaning set forth in Section 6.5(b).
“ Law ” or “ Laws ” means any constitutional provision, statute or other law, rule, regulation, official policy or interpretation of anyGovernmental Authority and any injunction, judgment, order, ruling, assessment or writ issued by any Governmental Authority.
“ Leased Land ” shall have the meaning set forth in Section 6.12.
“ Licenses ” shall have the meaning set forth in Section 5.2(j)(ii).
“ Losses ” shall have the meaning set forth in Section 10.1(a).
“ Maximal Component Supply Agreement ” means the component supply agreement to be agreed on or entered into betweenHYG (or its designated Affiliate) and the Target Company on or prior to the Closing Date with regard to the supply of components,parts and materials manufactured by the Target Company to HYG or its designated Affiliate.
“ Maximal Product Supply Agreement ” means the Product Supply Agreement to be agreed on or entered into by the TargetCompany and HYG (or its designated Affiliate) on or prior to
the Closing Date with regard to the supply of Maximal-branded products to HYG or its designated Affiliate.
“ Material Adverse Change ” means, (i) a material damage to, or destruction of, greater than 20% of the manufacturing capacitywith respect to the Target Company’s production facilities that has resulted in the material disruption of the Target Company'sability to provide product and services to customers that cannot be cured within thirty (30) days of such event; and (ii) any changerelated to Material Contract, Intellectual Property or litigation that has a materially adverse effect on the business, assets, liabilitiesor financial condition of the Target Company and such change has resulted in a loss of more than US$ 125,000, or a series of suchchanges that have resulted in a loss of more than US$ 600,000.
“ Material Contract ” shall have the meaning set forth in Section 5.2(i)(i).
“ Military ” shall have the meaning set forth in Section 5.2(u)(ii).
“ MOFCOM ” means the PRC Ministry of Commerce or its authorized local division that has the right to review and record theEquity Transfer, this Agreement, and the Amended AOA.
“ Mr. Lu ” means Jinhong Lu, the majority shareholder of Seller, and the legal representative and Chairman of the Board of theTarget Company.
“ New Business License ” shall have the meaning set forth in Section 4.5(a).
“ ODH ” shall have the meaning set forth in Section 5.2(m)(iii).
“ OEM and Licensing Agreement ” means the OEM and Licensing Agreement to be agreed on or entered into by the TargetCompany and HYG (or its designated Affiliate) on or before the Closing Date with regard to the contract manufacturing andlicensing arrangement related to products labeled with HYG marking and made and sold by the Target Company to HYG (or itsdesignated Affiliate) .
“ Outside Date ” shall have the meaning set forth in Section 12.1(b)(iv).
“ Owned Real Properties ” shall have the meaning set forth in Section 5.2(q)(i).
“ PDP ” shall have the meaning set forth in Section 5.2(m)(iii).
“ PDR ” shall have the meaning set forth in Section 5.2(m)(iii).
“ Person ” means any individual, corporation, company, partnership, limited partnership, sole proprietorship, association,organization, business, joint venture, firm, trust, estate or any other enterprise, organization or entity, and shall include anyGovernmental Authority.
“ Post-Closing Statement ” shall have the meaning set forth in Section 8.1(b).
“ Products ” shall have the meaning set forth in Section 5.2(t).
“ PRC GAAP ” shall have the meaning set forth in Section 5.2(d).
“ Purchase Price ” shall have the meaning set forth in Section 3.2.
“ Real Properties ” shall have the meaning set forth in Section 5.2(q)(iii).
“ Reference Balance Sheet ” means the balance sheet of the Target Company dated December 31, 2016, as attached hereto asAppendix A .
“ Reference Balance Sheet Date ” means December 31, 2016 .
“ Related and Third Party Guarantees ” means all the guarantees granted by the Target Company for the benefit of Seller, Mr. Lu,any Affiliates of Seller or any Affiliates of Mr. Lu, and/or any other individuals and entities related or unrelated to Mr. Lu and Seller(such as Mr. Lu’s personal friends) on or before the Execution Date (which may continue in force after the Execution Date), a list ofwhich is set forth under Schedule 6.6 .
“ Related Party ” means any manager, director, officer, or employee of the Target Company, the Immediate Family Members of themanagers, directors and officers of the Target Company, and the Immediate Family Members of Mr. Lu.
“ SAFE ” means the PRC State Administration of Foreign Exchange or its local branch or division that is empowered to approve theforeign exchange payment of the Purchase Price and register foreign exchange matters related to the Equity Transfer.
“ SAFE Approval ” shall have the meaning set forth in Section 4.6(a).
“ SAIC ” means the PRC State Administration for Industry and Commerce or its local branch or division that is empowered toregister the Equity Transfer and relevant changes in the Target Company’s status.
“ Sample Closing Statement ” shall have the meaning set forth in Section 8.1(a).
“ Samuk ” means Hangzhou Samuk Forklift Co., Ltd.
“ Seller’s Designated Account ” shall have the meaning set forth in Section 3.3(a).
“ Seller’s Guarantee Letter ” shall have the meaning set forth in Section 6.14.
“ Seller Warranties ” shall have the meaning set forth in Section 5.2.
“ Shanghai HY ” shall have the meaning set forth in Section 8.5.
“ Shanghai Maximal ” shall have the meaning set forth in Section 6.4(a).
“ Shareholders Agreement ” means the shareholders agreement to be entered into between Holding Co and Buyer before theClosing Date regarding the management and operation of the Target Company after the Closing, substantially in the form attachedhereto as Appendix B .
“ Share Charge Deed ” shall have the meaning as set forth in Section 6.2(c).
“ Shenzhen Maximal ” shall have the meaning set forth in Section 6.4(a).
“ Sites ” means all sites of the Target Company to which the Target Company has title (ownership of buildings or land use right) toor occupies for purposes of its operation since its establishment, a list of which is set forth under Schedule 5.2(q) .
“ Straddle Period ” shall have the meaning set forth in Section 6.8(a).
“ Sub ” shall have the meaning set forth in Section 6.3.
“ Target Company ” shall have the meaning ascribed under Recitals.
“ Tax ” or “ Taxes ” means all taxes, direct or indirect, levies, fees, duties, contributions, or charges, including but not limited tocorporate income tax (“ CIT ”), individual income tax, withholding tax (of any nature whatsoever), value added tax (“ VAT ”), salestax, business tax (“ BT” ), other transfer taxes, stamp taxes, registration duties, capital tax and other transaction taxes, customs andexcise duties, social security contributions (including, without being limited to, all employment related taxes), real estate taxes, deedtaxes and environmental taxes payable in accordance with applicable Laws or effective ruling or instruction by any GovernmentalAuthority of PRC, whether national, federal, regional, local, domestic or foreign, including interest, penalties, surcharges or finesand other related charges thereon.
“ Technology License Agreement ” means the Technology License Agreement to be agreed on or entered into by HYG (or itsdesignated Affiliate) and the Target Company on or before the Closing Date, with regard to the technology license granted by HYG(or its designated Affiliate) to the Target Company.
“ Technical Assistance Agreement ” means the Technical Assistance and Regulatory Standards Agreement to be agreed on orentered into by HYG (or its designated Affiliate) and the Target Company on or before the Closing Date, with regard to thetechnology assistance provided by HYG (or its designated Affiliate) to the Target Company.
“ The First Escrow Payment " shall have the meaning set forth in Section 3.3(b).
“ The Second Escrow Payment " shall have the meaning set forth in Section 3.3(b).
“ Third-Party Claim ” shall have the meaning set forth in Section 10.2.
“ Transaction Documents ” means this Agreement, the Escrow Agreement, the Shareholders Agreement, the Amended AOA, theShare Charge Deed, the Employment Contract, the OEM and Licensing Agreement, the Technology License Agreement, theMaximal Product Supply Agreement, the HY Component Supply Agreement, the Maximal Component Supply Agreement, theTechnical Assistance Agreement, and any other agreements or documents agreed to and/or executed by all or some of the Parties inconnection with the Equity Transfer.
“ Undertaking Letter ” means the Guaranty and Undertaking Letter signed and delivered by Mr. Lu for the benefit of Buyer toguarantee and ensure the performance of this Agreement and other covenants agreed to by Buyer and Mr. Lu in relation to theEquity Transfer.
“ Working Capital Adjustment Amount ” shall have the meaning set forth in Section 8.1(a).
Section 1.2 Additional Definitions
Other capitalized terms shall have the meanings set forth in the clauses and articles set forth herein.
ARTICLE II THE PARTIES TO THE EQUITY TRANSFER
Section 2.1 Seller
The name, legal address and current legal representative of Seller are as follows:
Name: KNSN Pipe & Pile Company LimitedAddress: Jiang Jia Village, Lu Shan Street, Fuyang District, Hangzhou City, Zhejiang Province, ChinaLegal Representative: Name: Jinhong LuTitle: Executive Director and General ManagerNationality: Chinese
Section 2.2 Buyer
The name, legal address and current legal representative of Buyer are as follows:
Name: Hyster-Yale Acquisition Holding LtdAddress: Centennial House, Building 4.5, Frimley Business Park, Frimley, Surrey GU16 7SG, UKLegal Representative: Name: Colin WilsonTitle: Authorized RepresentativeNationality: American
ARTICLE III TRANSFER OF EQUITY INTEREST AND PURCHASE PRICE
Section 3.1 Purchase and Sale of Equity Interest
(a) Seller agrees to sell, assign and transfer to Buyer, and Buyer agrees to purchase, accept and acquire from Seller, seventy-fivepercent (75%) equity interest in the Target Company (the “ Equity Interest ”), including all right, title and interest of Sellerin the Equity Interest in accordance with the terms and conditions stipulated under this Agreement (the “ Equity Transfer ”).
(b) As of the Closing Date, unless otherwise agreed to by the Parties, the transfer of the Equity Interest shall include, amongother things, the assignment of all of the voting and economic rights associated with the Equity Interest, any undistributeddividends and any undistributed retained earnings of the Target Company proportionate to the Equity Interest accumulated asof the Closing Date.
Section 3.2 Purchase Price
In consideration of Seller’s transfer of the Equity Interest to Buyer pursuant to this Agreement, Buyer shall pay to Seller a totalpurchase price for the Equity Interest in USD90,000,000 (the “ Purchase Price ”). The Purchase Price shall be paid by wire transferof immediately available funds in US Dollars in the amounts and on the dates specified in Section 3.3. The Purchase Price includesthe First Installment and the Escrow Amount provided in Section 3.3 below.
Section 3.3 Payment of the Purchase Price
(a) On the Closing Date, provided that Buyer has issued the Closing Confirmation pursuant to Section 7.2(a) and the NewBusiness License has been issued to the Target Company, Buyer shall pay ninety percent (90%) of Purchase Price (“ FirstInstallment ”), i.e., USD81,000,000, to a “Special Foreign Currency Bank Account for Asset Realization” of Seller openedwith a PRC bank as provided in Section 4.6(a) (“ Seller’s Designated Account ”). Seller’s Designated Account shall beopened as a jointly-controlled escrow account whereby no amount in such account can be released to anyone without theinstruction signed by both Parties. The First Installment may only be released for the use of repaying KNSN Receivablespursuant to Section 6.5 and removing Related and Third Party Guarantees pursuant to Section 6.6. Provided that (i) theKNSN Receivables are fully repaid, (ii) the Related and Third Party Guarantees are partially removed pursuant to thetimeline set forth in Schedule 6.6 so that the total amount of such Guarantees is lowered to or under RMB147,950,000, and(iii) there is no remaining or additional liabilities to the Target Company or Buyer associated with the removed Guarantees,any balance amount in Seller’s Designated Account may be released and wired to another designated account of Seller withinten (10) Business Days after the satisfaction of (i), (ii) and (iii) above.
(b) On the Closing Date, provided that Buyer has issued the Closing Confirmation pursuant to Section 7.2(a) and the NewBusiness License has been issued to the Target Company, Buyer shall wire ten percent (10%) of the Purchase Price, i.e.,USD9,000,000 (the “ Escrow Amount ”), to an escrow account (“ Escrow Account ”) opened in Hong Kong pursuant to athree-party escrow agreement (the “ Escrow Agreement ”) among Buyer, Seller and an escrow agent or bank located inHong Kong. The Escrow Amount will be released to Seller in two installments in accordance with the terms and conditionsof this Agreement: (i) USD 2,700,000 (“ The First Escrow Payment ”), which is retained in the Escrow Account to securethe performance of those obligations and undertakings set forth under Section 8.4(a) for the first two (2) years after Closing;and (ii) USD 6,300,000 (“ The Second Escrow Payment ”), which is retained in the Escrow Account to secure theperformance of those obligations and undertakings set forth under Section 8.4(b) for the entire three-year period afterClosing. The First Escrow Payment shall remain in the Escrow Account for two (2) years after Closing in accordance withSection 8.4(a). The Second Escrow Payment shall remain in the Escrow Account for three (3) years after Closing inaccordance with Section 8.4(b). The Escrow Agreement shall specify that none of the Escrow Amount may be released toSeller until and unless both Buyer and Seller have signed a written release instruction to authorize the release in accordancewith the Escrow Agreement. Any amount deposited in the Escrow Account will not accrue interest. The Parties agree that anyEscrow Amount or the balance after deduction (if applicable) in the Escrow Account will be paid to Seller pursuant toSection 8.4 within one (1) month upon the expiration of the relevant period to determine the payment of Escrow Amountpursuant to Section 8.4.
ARTICLE IV APPROVALS AND REGISTRATION
Section 4.1 Board Resolution and Shareholder Resolution
(a) As soon as practical after the Execution Date and no later than the Closing Date, Seller shall,
(i) cause unanimous board resolutions to be adopted and signed by all directors of the Target Company, and if sorequired for purpose of filing with MOFCOM and SAIC, cause shareholder resolution to be adopted and signed by allshareholders of the Target Company, to approve, among other matters,
(A) the Equity Transfer by Seller to Buyer pursuant to this Agreement; and
(B) the adoption of the Amended AOA;
(ii) cause the current owner of the remaining twenty-five percent (25%) equity interest in the Target Company to confirmin writing his waiver of the right of first refusal with regard to, and consent to, Seller’s entering into the EquityTransfer pursuant to this Agreement.
Section 4.2 Waiver of Right of First Refusal; Shareholders Agreement
As soon as practical after the Execution Date and no later than the Closing Date, Seller shall cause the 25% shareholder of the TargetCompany (as consented by HY) to (i) confirm in writing its waiver of the right of first refusal with regard to, and consent to, Seller’sentering into the Equity Transfer with Buyer pursuant to this Agreement; and (ii) enter into the Shareholders Agreement andAmended AOA with Buyer, adopt and sign unanimous shareholder resolutions together with Buyer approving the Equity Transferand Amended AOA, and deliver signed originals of the aforementioned documents to Buyer.
Section 4.3 Board of Directors
(a) On or before the Closing Date, Seller shall issue a letter of removal effective as of the Closing Date to remove and/or replacesuch number of the current directors of the Target Company pursuant to the Amended AOA, and Buyer shall appoint suchnumber of directors to the Target Company on the Closing Date to cause that the board composition of the Target Companycomply with the Amended AOA as approved.
(b) As soon as practical after the Closing Date and no later than the fifteenth (15th) day after the Closing, each of Seller andBuyer shall provide all assistance and support as may be necessary for the Target Company to complete all filings with theappropriate registration authorities (including but not limited to SAIC) and obtain any approvals and certificates required toeffectuate the establishment of the new Board of Directors with the respective number of appointees from Seller and Buyer.
Section 4.4 MOFCOM Filing
As soon as practicable following the Execution Date and no later than the Closing Date, provided that the 25% equity interest in theTarget Company is owned by a shareholder consented by HY, Seller shall, and shall cause the Target Company to, prepare andsubmit to MOFCOM all required documents to register the Equity Transfer, the Shareholders Agreement (if needed), the AmendedAOA, and other corporate changes of the Target Company as required hereunder. Buyer shall provide necessary assistance for suchfiling with MOFCOM.
Section 4.5 SAIC Registration
(a) As soon as practicable following the Execution Date and no later than the Closing Date, subject to Buyer’s issuance of theClosing Confirmation pursuant to Section 7.2(a), Seller shall, and shall cause the Target Company to, with necessaryassistance of Buyer as may be required, timely prepare and submit to SAIC all required documents to register the EquityTransfer and the other relevant changes in the corporate records of the Target Company, reflecting, among other things, theEquity Transfer, the change in the company name of the Target Company and the Amended AOA. The completion of suchregistration with SAIC shall be evidenced by a new business license (the “ New Business License ”; the date on which theNew Business License is issued is herein referred to as the “ Business License Date ”) and relevant registration recordsissued by SAIC reflecting, among other things, that (i) Buyer is the seventy-five percent (75%) shareholder of the TargetCompany, and (ii) the Target Company’s name has been changed to “Hyster-Yale Maximal Materials Handling Co., Ltd.” oranother similar name as the Parties agreed to (collectively, the “ Corporate Changes ”).
(b) Upon the Closing Date, Buyer shall own legal and beneficial ownership of the Equity Interest. Starting from the ClosingDate, Buyer shall be entitled to all the relevant rights and interests, and be bound by all the relevant obligations, as associatedwith the Equity Interest under applicable Laws and regulations as well as the Amended AOA.
(c) In order to facilitate the Parties’ control of the progress of Closing, Seller shall timely communicate with Buyer and obtain aprior written consent from Buyer before Seller and/or the Target Company applies for the New Business License.
Section 4.6 SAFE Registration
(a) As soon as practical after the Execution Date and no later than the Business License Date, Seller shall, with the necessaryassistance from Buyer and the Target Company, apply to the competent level of SAFE and/or a bank designated by SAFE forall the approvals and permits (“ SAFE Approval ”) required for opening Seller’s Designated Accounts in the form of bankaccounts permissible for receiving and settling foreign currency payment, pursuant to which Seller would be allowed toreceive and settle the Purchase Price as paid in foreign currency into Seller’s Designated Account. Only after the issuance ofSAFE Approval and satisfaction of other relevant conditions agreed herein shall Buyer be obligated to pay the FirstInstallment into Seller’s Designated Account pursuant to Section 3.3(a) hereinabove.
(b) Within five (5) Business Days after the Business License Date, Seller shall, and shall cause the Target Company to, apply toSAFE or its designated bank for registration of
the Equity Transfer in the foreign exchange certificate (“ Foreign Exchange Certificate ”) of the Target Company.
(c) Within three (3) Business Days after Buyer pays the First Installment to Seller’ Designated Accounts pursuant to Section3.3(a) herein, to the extent applicable, the Parities shall, and shall cause the Target Company to, apply to SAFE for issuanceof the relevant “Certificate of Receipt and Settlement of Foreign Exchange Payment for Equity Transfer” evidencing the fullpayment of the First Installment.
Section 4.7 Other Registrations
As soon as practical following the Business License Date, the Parties shall, and shall cause the Target Company to, apply to therelevant authorities to complete all other relevant registrations arising from the Equity Transfer, including without limitation, tax,financial, statistics registrations and such other registrations as required under applicable Laws.
ARTICLE V REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties of Buyer
Buyer represents, warrants, and undertakes to Seller that each of the following statements contained in this Section 5.1 (the “ BuyerWarranties ”) is true and complete in all respects as of the Execution Date, and each of such statements shall be true and completeas of the Closing Date, with the same effect as if made on the Closing Date:
(a) It is duly organized and validly existing under the Laws of England and Wales and has the requisite legal capacity andauthority to enter into this Agreement and perform its obligations hereunder;
(b) It has obtained all appropriate board and/or shareholder level approvals for entering into and undertaking the transactionscontemplated in this Agreement and its execution and performance of this Agreement does not violate any applicable Laws,order, judgment or decree;
(c) It is not insolvent and no receiver or administrator has been appointed to it or over any part of its assets and no suchappointment has been threatened, it is not in liquidation and no proceeding has been brought or threatened for the purpose ofwinding up Buyer, and there are no facts, matters or circumstances which give any person the right to apply to liquidate orwind up Buyer; and
(d) It has not entered into an arrangement, compromise or composition with or assignment for the benefit of its creditors or aclass of them, and it is able to pay its debts, other than debts or claims the subject of a good faith dispute, and has not stoppedor suspended the payment of all or a class of its debts.
Section 5.2 Representations and Warranties of Seller
Subject to those information specifically set forth in the Disclosure Schedules attached to this Agreement (the “ DisclosureSchedules ”), Seller hereby represents and warrants to Buyer that
each of the statements contained in this Section 5.2 (collectively, the “ Seller Warranties ”) is true and complete in all respects as ofthe Execution Date, and each of such Seller Warranties shall be true and complete on and as of the Closing Date, with the sameeffect as if made on and as of the Closing Date.
(a) Information Provided
All information and documents provided by Seller its Affiliates and Related Parties, or its professional advisors and otherauthorized representatives to Buyer, with regard to Seller, Mr. Lu or the Target Company are true, accurate and complete inany aspect and where applicable, all the documents so provided are true and complete copies of the originals.
(b) Capacity and Authorization
(i) Seller is a limited liability company duly incorporated and validly existing under the Laws of PRC, and has therequisite legal capacity and authority to enter into this Agreement and perform its obligations hereunder.
(ii) The execution and performance by Seller of this Agreement and each of the other Transaction Documents to whichSeller is a Party shall not:
(A) cause any violation of the provisions of the existing Articles of Association of the Target Company or any othersimilar regulations and documents with respect to the formation and operation of the Target Company; or
(B) cause any violation of any Laws or any order, ruling or instruction that is imposed on or binding on either Selleror the Target Company by any court or Governmental Authority of the PRC.
(c) The Equity Interest
(i) Seller is the sole legal and beneficial owner of the Equity Interest of the Target Company and has full power andcapacity to transfer the Equity Interest to Buyer.
(ii) The Equity Interest is free and clear of all Encumbrances and there is no outstanding claim with regard to such EquityInterest or any agreements to transfer the Equity Interest to any third parties.
(iii) The total registered capital amount of the Target Company is RMB78,700,000, which has been fully paid in. TheEquity Interest constitutes 75% of the registered capital of the Target Company.
(d) Financial Statements
With regard to the Target Company and the Reference Balance Sheet attached hereto as Appendix A , Seller herebyrepresents and warrants that the Reference Balance Sheet is true, correct and complete, and has been prepared or recorded inaccordance with the Accounting Standards for Business Enterprises issued by the Ministry of Finance of the
PRC and other PRC generally accepted accounting principles and relevant regulations issued by the Ministry of Finance(collectively, “ PRC GAAP ”) consistently applied.
(e) Changes
Since the Reference Balance Sheet Date, except as contemplated by this Agreement or otherwise disclosed under Schedule5.2(e) , there has not been:
(i) any waiver by Seller or the Target Company of a valuable right or of a material debt in excess of RMB125,000 owedto it with respect to the Target Company or its assets;
(ii) any incurrence of or commitment to incur any Indebtedness with respect to the Target Company for money borrowedother than in the ordinary course of business;
(iii) the creation of any Encumbrance with respect to the Target Company or the Assets of the Target Company;
(iv) any satisfaction or discharge of any Encumbrance or payment of any obligation of the Target Company, except in theordinary course of business and that is not material to the Assets, financial condition or operation of the TargetCompany;
(v) any material change, amendment to or termination of a Material Contract (as defined under Section 5.2(i)(i));
(vi) any sale, assignment, exclusive license, or transfer of any Intellectual Property used in or necessary to the operationof the Target Company to any third party;
(vii) any loan or advance to, guarantee for the benefit of, or investment in, any Person (including but not limited to any ofthe employees, officers or directors, or any members of their immediate families, of Seller or the Target Company),corporation, partnership, joint venture or other entity that would create a liability for the Target Company other thanin the ordinary course of business;
(viii) any damage, destruction or loss, whether or not covered by insurance, adversely affecting the assets, financialcondition or operation of the Target Company resulting in more than RMB125,000;
(ix) receipt of any notice that there has been a termination of business relationship with, or cancellation of an order with avalue of more than RMB125,000 by, any customer of the Target Company;
(x) any capital expenditures or commitments therefor involving the Target Company that individually or in the aggregateexceeds RMB125,000; or
(xi) any other event or condition of any character which individually or in the aggregate would incur Material AdverseChange on the assets, financial condition or operation of the Target Company.
(f) Intellectual Property
(i) The Target Company owns or otherwise has the right or license to use all Intellectual Property necessary for itsoperation without any violation or infringement of the rights of others, free and clear of all Encumbrances. Schedule5.2(f) contains a complete and accurate list of all Intellectual Property owned, licensed to or used by the TargetCompany, whether registered or not, as well as a complete and accurate list of all licenses granted by the TargetCompany to any third party with respect to any Intellectual Property.
(ii) There is no pending or threatened claim or litigation contesting the right to use the Intellectual Property related to theTarget Company, asserting the misuse thereof, or asserting the infringement or other violation of any IntellectualProperty of any third party. All rights, title, and interest to any material inventions and material know-how conceivedby the Target Company as related to the operation of the Target Company, including any applications therefore, havebeen transferred and assigned to, and are currently owned by, the Target Company. All rights, title, and interest to anyinventions and know-how of the employees of the Target Company that (i) resulted from the use of the working time,Company’s materials, information or facilities; or (ii) are relevant to or arising out of the work, assignments or dutiesentrusted to the Target Company’s employees during the employees’ employment with the Target Company(including inventions and know-how made during the term of employment or within one year of termination or expiryof the employment), including any applications therefore, have been transferred and assigned to, and are currentlyowned by, the Target Company.
(iii) No proceedings or claims in which Seller or the Target Company alleges that any person is infringing upon, orotherwise violating, any Intellectual Property rights related to the Target Company are pending, and none has beenserved, instituted or asserted by Seller or the Target Company.
(g) Litigation
(i) There is no action, suit, hearing, arbitration, third-party claim, government enforcement action or investigation,administrative proceeding, or other court or regulatory proceeding in progress, pending, outstanding or threatened inthe PRC or any applicable foreign jurisdiction against or affecting Seller, the Target Company or any of their officers,directors or employees with respect to the Target Company, its assets or operation, or the Equity Interest, nor is therea legal basis for any of the foregoing.
(ii) There is no judgment, decree or order of any court or Governmental Authority, (including Governmental Authoritiesof any foreign countries with jurisdiction over Seller or the Target Company) in effect and binding on Seller or theTarget Company with respect to the Target Company’s operation, assets or personnel.
(iii) There is no court action, suit, proceeding or investigation with respect to the Target Company, its assets or operation,or the Equity Interest which Seller or the Target Company intends to initiate against any third party.
(h) Liabilities
Schedule 5.2(h) contains a complete and accurate list of the total amount of the liabilities of the Target Company (actual and contingent, including but notlimited to shareholder loans, liabilities incurred as a result of fixed assets investment, liabilities incurred for working capital, intercompany notes andguarantees provided by the Target Company for third parties). Except for (i) such liabilities as listed under Schedule 5.2(h ), and (ii) trading or businessliabilities incurred in the ordinary course of business, the Target Company has no other liabilities, whether accrued, absolute, contingent or otherwise, andwhether due or to become due.
(i) Contracts
(i) For purpose of this Agreement, a “ Material Contract ” means any of the following Contracts, to which the TargetCompany is a party:
(A) any Contract entered into in connection with the transfer or subscription of the Target Company’s equityinterest;
(B) any Contract that obligates the Target Company to pay, after the Reference Balance Sheet Date, an amount inexcess of RMB125,000;
(C) any Contract that has a contract value in excess of RMB125,000 each and a remaining term in excess of one (1)year;
(D) any Contract on which the Target Company and its operation is substantially dependent or which is otherwisematerial to the Target Company’s operation (“ substantially dependent ” or “ material ” meaning having apotential economic impact of at least RMB125,000) ;
(E) any loan agreement, indenture, letter of credit, security agreement, mortgage pledge agreement, deed of trust,bond, note, or other agreement relating to the borrowing of money or to the mortgaging, pledging, transferringof a security interest, or otherwise placing an Encumbrance on any part or all of the Assets;
(F) any Contract involving a guarantee of performance by any Person or involving any agreement to act asguarantor for any Person, or any other Contract to be contingently or secondarily liable for the obligations ofany Person;
(G) any Contract that limits or restricts the ability of the Target Company to compete or otherwise to conduct itsoperation in any manner or place;
(H) any joint venture, partnership, alliance or similar Contracts involving a sharing of profits or expenses
(I) any asset purchase agreement, share/equity purchase agreement or other Contract for acquisition or divestitureof any assets (including, without limitation, any Intellectual Property) by the Target Company for considerationin excess of RMB 125,000 per annum, as listed under Schedule 5.2(i) ;
(J) any Contract that grants a power of attorney, agency or similar authority to another Person or entity other thanpower delegated to an officer of the Target Company for the performance of his/her duties in the ordinarycourse of business;
(K) any Contract entered into with or related to any director, senior management or key employee of the TargetCompany, or any other personnel who assumes a confidentiality obligation towards the Target Company;
(L) any Contract that contains a right of first refusal; and
(M) any Contract containing a “change of control” clause which obliges the Target Company or Seller to notify therelevant party or obtain consent from the relevant party in case of a change of control or shareholding in theTarget Company, as listed under Schedule 5.2(i) .
(ii) The Material Contracts (as described under (A) through (M) in Section 5.2(i)(i) above) are all valid, in full force andeffect, and binding upon the Target Company and the other parties thereto. None of the Material Contracts are oralcontracts.
(iii) The Target Company has satisfied or provided for all of its liabilities and obligations under the Material Contractsrequiring performance prior to the date hereof and is not in default under any Material Contract. No condition existsthat with notice would constitute a material default. None of Mr. Lu, the Target Company or Seller is aware of anydefault thereunder by any other party to any Material Contract or any condition existing that with notice wouldconstitute such a default, or give any Person the right to declare a default or exercise any remedy under, or toaccelerate the maturity or performance of, or to cancel, terminate or modify, a Material Contract. None of Mr. Lu, theTarget Company or Seller has given to or received from any Person any notice or other communication (whether oralor written) regarding any actual, alleged, possible, or potential violation or breach of, or default under, any MaterialContract.
(iv) None of the Material Contracts has resulted in or will result in (a) a violation or breach of any provision of the currentarticles of association of the Target Company, (b) a breach of, or constitute a default under, or result in the creation orimposition of, any Encumbrance pursuant to any Contract to which the Target Company is a party or by which theTarget Company or any of their properties is bound, or (c) a breach of any Laws applicable to the Target Company orany of its assets.
(v) Except as otherwise disclosed under Schedule 5.2(i) , none of the Material Contracts as currently in effect contains a“change of control” clause described in Section 5.2(i)(i)(M) above.
(j) Compliance with Laws
(i) The Target Company has complied with and is in compliance with all national and local laws, statutes, executiveorders, licensing requirements, rules, regulations and judicial and/or administrative decisions and/or ordinances of the
PRC and all applicable foreign jurisdictions that are applicable to its business, the products manufactured, stored,transported and sold by the Target Company, the services provided by the Target Company, the Real Property andassets owned and leased by the Target Company and/or any combination of such activities. None of Mr. Lu, theTarget Company or Seller has Knowledge of any pending or threatened prosecution, enforcement action,investigation, administrative, regulatory or similar proceeding by any Governmental Authority with regard to theoperations of the Target Company’s businesses.
(ii) The Target Company is and has been: (a) duly licensed, and possesses the franchises, permits, licenses, approvals andother authorizations (collectively, “ Licenses ”) from all persons and entities, including all Governmental Authoritiesunder all applicable national, provincial, regional and municipal Laws, that are necessary for the Target Company toengage in its business pursuant to its articles of association and operate its assets in all applicable jurisdictions; and(b) in compliance with all Licenses. All Licenses are valid, in full force and effect and not subject to challenge. SuchLicenses include but not limited to the High-and-New-Technology-Enterprise Qualifications (“ HNTEQualifications ”) that would entitle the Target Company to relevant tax benefits. In particular, Seller represents andwarrants that all HNTE Qualifications of the Target Company obtained before the Closing Date have been, and willbe, applied, obtained and used in compliance with all applicable Laws. No condition or fact existed or exists thatwould cause the previous or current HNTE Qualifications of the Target Company to be canceled, revoked, orpenalized by any Governmental Authority, or would cause the Target Company to be required to disgorge benefits ithas enjoyed as a result of its previous and existing HNTE Qualifications.
(iii) All reports, informational returns and updates which the Target Company is required to file under any national,provincial, regional, and municipal law, rule, regulation or order have been filed in a timely manner and all feesrelating to the same have been paid. The Target Company has not engaged in any activity that would cause a materialchange to, revocation of or suspension of any Licenses. No action, proceeding or investigation contemplating therevocation or suspension of any License is pending or threatened, and neither the Target Company nor Seller hasKnowledge of any reason why any License would not be renewed. The Equity Transfer as contemplated herein willnot affect the validity or enforceability of any Licenses, contracts or other rights and entitlements.
(k) Compliance with Anti-Corruption Laws and Regulations
(i) With respect to the operation and management of the Target Company, except as otherwise disclosed by Seller or Mr.Lu to Buyer or its representatives for purpose of this Equity Transfer, the Target Company, and all of its shareholders(including but not limited to Seller), officers, directors, employees, consultants, representatives, agents, distributors,resellers or Affiliates (and any person or entity acting on behalf of any of the foregoing) have complied with Anti-Corruption Laws with respect to (i) the holding of shares in the Target Company
and/or (ii) all matters, operations and activities relating to the Target Company directly or indirectly.
(ii) Specifically, without limiting the foregoing representation, with respect to the operation and management of theTarget Company, the Target Company, and all of its shareholders (including but not limited to Seller), officers,directors, employees, consultants, representatives, agents, distributors, resellers or Affiliates (and any person or entityacting on behalf of any of the foregoing) have not, directly, or indirectly:
(A) made any unlawful payment to foreign or domestic Government Officials or to foreign or domestic politicalparties or campaigns;
(B) provided any contribution, gift, donation, grant, bribe, rebate, payoff, influence payment, kickback, travel,lodging, meal, entertainment or other payment, or provided any other benefit or thing of value to any Person,private or public, regardless of whether in tangible or intangible form, and whether in money, property, favorsor services:
(1) to obtain favorable treatment or advantages for the Target Company, or to secure contracts or business,
(2) to obtain special concessions or pay for special concessions already obtained, or
(3) in violation of the Anti-Corruption Laws.
(C) established or maintained any fund or asset used in relation to or for the benefit of the Target Company, that hasnot been properly recorded in the books or records of the Target Company;
(D) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating torelationships with a Governmental Authority or a Government Official’s political activity; or
(E) authorized or tolerated any of the above.
(iii) For purpose of this Section 5.2(k), “Government Official” means any officeholder, employee or other official(including any immediate family member thereof) of a Governmental Authority, any person acting in an officialcapacity for a Governmental Authority or any candidate for political office. “ Governmental Authority ” means inany jurisdiction, any government, any other supranational, national, state, federal, regional, municipal, city, town orlocal government, any subdivision, court, arbitral tribunal, central bank or administrative agency or commission orother authority thereof, any state enterprise or state corporation or other entity owned or controlled by a government,any quasi-governmental body exercising any regulatory, administrative, taxing, excise, customs importing or othergovernmental or quasi-governmental authority or any stock exchange or other regulatory or supervisory body orauthority, a political party or a public international organization.
(iv) None of the Target Company or any of its shareholders (including but not limited to Seller), officers, directors, oremployees is a Government Official or a Governmental Authority and none of the proceeds of the transaction underthis Agreement shall be directed to any Government Official or Governmental Authority.
(v) Seller and the Target Company have made all payments to third parties, including sales agents, consultants,commission agents, distributors, resellers, dealers or other intermediaries engaged to sell, market or otherwise secureor retain business for the Target Company, in compliance with Anti-Corruption Laws.
(vi) To the best Knowledge of Seller and the Target Company, all distributors, resellers and agents of the Target Companyare in compliance with Anti-Corruption Laws.
(vii) Mr. Lu, Seller and the Target Company have never received any reports, complaints or allegations from any sourcewhatsoever that the Target Company or its officers, directors, employees, or third parties acting on the TargetCompany’s behalf have violated the Anti-Corruption Laws.
(l) Overall Compliance History
With respect to the Target Company or the Target Company’s operations, (i) neither Seller or the Target Company hasconducted or initiated any internal investigation or made a voluntary disclosure to any Governmental Authority with regardto any alleged act or omission arising under any applicable Laws or Anti-Corruption Laws; and (ii) no GovernmentalAuthority has initiated, or threatened to initiate, a proceeding against the Target Company or any of its respective officers,directors, employees, consultants, representatives, agents or affiliates asserting that Seller, the Target Company, or any oftheir respective Affiliates or Related Parties is not in compliance with any export or import Laws, Anti-Corruption Laws, orany other applicable Law.
(m) Environmental, Health and Safety Issues
(i) With respect to the operation of the Target Company since its establishment, except as disclosed under Schedule5.2(m), neither Seller (when acting on behalf of the Target Company) nor the Target Company was or is in violationof any Environmental Laws, and no material expenditures exceeding RMB125,000 are or are threatened to berequired in order to comply with any such Environmental Laws.
(ii) In relation to the Target Company and its operation, except as disclosed under Schedule 5.2(m), neither Seller (whenacting on behalf of the Target Company) or the Target Company (1) owns, leases or operates any real propertycontaminated with or has been exposed to any Hazardous Substance that is subject to any Environmental Laws ofPRC, (2) is liable for any off-site disposal or contamination pursuant to any Environmental Laws of PRC, or (3) issubject to any claim relating to any Environmental Laws of PRC, and there is no pending or threatened lawsuit,proceeding or investigation against either of them which might lead to such a claim.
(iii) The Target Company has obtained and currently maintains all environmental, health and safety permits (“ EHSPermits ”) required for all its previous and current operation under applicable environmental laws of the PRC, and isin full compliance with all such EHS Permits. Such EHS Permits include, without limitation, the environmentalimpact assessment (“ EIA ”) approval, relevant instruction or opinions from the Environmental Authorities related toenvironmental completion acceptance inspection (“ CAI ”) approval, Pollutant Discharge Registration (“ PDR ”),Pollutant Discharge Permit (“ PDP ”), Occupational Disease Hazards (“ ODH ”) Pre-assessment and Acceptance,ODH Control effectiveness assessment and Occupational Healthy Completion Acceptance Inspection Approval, andother applicable ODH registration and fire-fighting inspection qualification certificates.
(n) Title; Encumbrances
(i) Except as otherwise disclosed under Schedule 5.2(n) , as of the Execution Date, the Target Company has good andmarketable title to all the Assets (as listed under Schedule 5.2(n) ). All Assets of the Target Company are free andclear of any Encumbrances. With respect to the Assets leased by the Target Company, the Target Company is in fullcompliance with such leases and holds a valid leasehold interest free of any Encumbrances.
(ii) Except for the bad debt provision already made by the Target Company as of the Execution Date, the accountsreceivable included in the Assets are collectible. All of the inventory included in the Assets consists of a quantity andquality usable and saleable in the ordinary course of business, and is fit for its intended use, in compliance with allapplicable Laws and certifications, supported by fair consideration and valid invoices, and in conformity with allapplicable product registrations and specifications. The Target Company does not hold any materials on consignmentor have title to any materials in the possession of others.
(iii) All Taxes and government charges payable related to the import and/or procurement of the equipment and machineryof the Target Company have been fully and timely paid. The Target Company owns or otherwise occupies no otherequipment or machinery that is subject to any “lock-in” period and/or supervision by any Governmental Authority.The Target Company is not subject to any legal or administrative requirement to pay or refund any Taxes or fees inconnection with any of its Assets (including but not limited to any equipment or machinery) due to the EquityTransfer.
(o) Related-Party Transactions
(i) Except as otherwise disclosed under Schedule 5.2(o) , no Related Party has any agreement, understanding, orproposed transaction that is currently performed, ongoing or still in its effective term relating to the Target Companywith, or is currently indebted to Seller, the Target Company or their respective Affiliates.
(ii) Except as disclosed in Schedule 5.2(o) , neither Seller nor the Target Company is currently indebted (or committed tomake loans or extend or guarantee credit)
to any Related Party (other than for accrued salaries, reimbursable expenses or other standard employee benefits).
(iii) Except as disclosed in Schedule 5.2(o) , no Related Party currently has any direct or indirect ownership interest in anyfirm or corporation with which Mr. Lu, Seller, the Target Company or any of their respective Affiliates is affiliated orwith which Mr. Lu, Seller, the Target Company or any of their respective Affiliates has a business relationship, or anyfirm or corporation that competes with Seller, the Target Company or their respective Affiliates (except that RelatedParties may own less than one percent (1%) of the stock of a publicly traded company that engages in the foregoing).
(iv) No Related Party currently has any interest, either directly or indirectly, in: (1) any Person which purchases from orsells, licenses or furnishes to Seller, the Target Company or their respective Affiliates any goods, property,intellectual or other property rights or services; (2) any third party Person which sells, markets or promotes theProducts or business of the Target Company or earns any form of commission, compensation or margin for the same;or (3) any Contract to which Seller, the Target Company or any of their respective Affiliates is a party or by which itmay be bound or affected.
(p) Entire Business
There has been no facilities, equipment, services, assets or properties shared with any other entity, which are used inconnection with the Target Company’s operation. Assets of the Target Company at Closing constitute all the necessary assetsrequired to operate the business in the same manner as the Target Company has operated the business prior to the ExecutionDate.
(q) Real Estate
(i) The Target Company holds valid, complete and fully paid-up title to all the land use rights and buildings listed inSchedule 5.2(q) (collectively, the “ Owned Real Properties ”), and there is no outstanding consideration or Tax to bepaid to perfect or secure the Target Company’s full title (including land use rights) to such Owned Real Property.
(ii) All buildings owned, occupied or used by the Target Company are qualified for their respective use and have beenconstructed with sufficient and valid planning and construction permits as legally required.
(iii) Schedule 5.2(q) contains a full and accurate list of all real properties owned, leased, occupied or used by the TargetCompany (collectively, “ Real Properties ”). The Target Company’s occupation, use, ownership, lease andconstruction of any and all Real Properties complies with applicable Laws, regulations, rules, decrees, agreementsand contracts, and does not impose any requirement, obligation or risks on the Target Company or Buyer to pay anyfees, fines, damages, costs, or other amounts (excluding rents payable under valid lease agreements) arising from suchownership, leasehold, occupation or usage.
(iv) All leases related to the Real Properties are in full force and effect and the Target Company is not in default under anyprovision of such leases.
(v) There are no circumstances, including any notice of condemnation or eminent domain, which would restrict orterminate the continued ownership, lease, occupation, use or enjoyment of any Real Property.
(r) Labor
(i) Schedule 5.2(r) contains an accurate and complete list of the employees of the Target Company and its branches andsubsidiaries.
(ii) The Target Company has duly entered into valid labor contracts and established effective employment relationshipswith each of its employees in full compliance with applicable Laws. All statutory requirements regarding any of suchlabor contracts have been fulfilled. Neither the Target Company nor Seller has any liability prior to the Closing Datefor breach or indemnification to any employee of the Target Company with respect to the performance of or othermatters relating to the labor contracts or any other commitment or contractual arrangement with any such employee.
(iii) The Target Company has made timely payment of all labor-related remuneration, benefits, liabilities, costs, fees andexpenses (collectively, “ Employee Liabilities ”) pursuant to applicable Laws and its contractual obligations withregard to each of its employees, including but not limited to (i) full and timely payment and contribution of socialsecurity (including pension, unemployment, medical, birth control and work-related injury insurance) and housingfund for any and all employees, and (ii) full payment and contribution of all salaries, bonuses, benefits, allowance orinsurance benefits (such as any bonus plan or insurance benefits as committed to any employee) payable toemployees. There has been no overdue payment penalties, fines or other sanctions with respect to any EmployeeLiabilities.
(iv) The Target Company has complied with all applicable Laws and regulations in relation to any of its employees,including without limitation, Laws with respect to labor contracts, labor safety, working conditions, working hours,holidays, payment of salaries and withholding income taxes, contribution to employee social insurance funds andhousing funds, overtime work compensation, termination and severance payments, overdue interest, penalties,sanctions, and labor unions.
(v) The Target Company has complied with all registration procedures and requirements related to its employees underapplicable Laws, obtained valid and updated registration certificates for applicable labor matters (including but notlimited to, registration of labor contracts and social insurance registration certificates), and duly passed all annualinspection conducted by the relevant Governmental Authorities in charge of employment matters.
(vi) There is no pending, unresolved or threatened litigation, arbitration, claim or disputes by or relating to any existing orformer employee of the Target Company
(including its branches or subsidiaries). Neither Seller nor the Target Company has received any written notice of anybreach by Seller or the Target Company of its legal or contractual obligations to such employee.
(vii) All employees of the Target Company are employees performing actual work responsibilities related to the operationor management of the Target Company who have not reached their respective retirement ages, and there is no internalretirees or legal retirees working for the Target Company or otherwise on the payroll of the Target Company. TheTarget Company has not assumed and will not assume any Employee Liabilities in relation to any ex-employees whoare still on the payroll but are retired or have been made redundant prior to the retirement age.
(s) Taxation
(i) Full provision or reservation has been made in the Reference Balance Sheet for all Taxes to be assessed against theTarget Company when they fall due in accordance with Laws , including, without limitation, Taxes accrued on orbefore the Reference Balance Sheet Date. By the Closing Date, full provision or reservation shall have been made forall Taxes to be assessed against the Target Company as accrued for the period between the Reference Balance SheetDate and the Closing Date.
(ii) The Target Company has (1) timely, completely and accurately prepared and filed in accordance with Laws all taxreturns, reports and relevant supporting documents , and (2) timely and fully paid all Taxes payable by the TargetCompany since its formation, and timely and fully withheld and remitted to the appropriate Governmental Authorityall Taxes which it is obligated to withhold and remit from amounts owing to any employee, creditor, customer orthird party.
(iii) Since its formation, the Target Company has not been subject to any penalty from any tax authority, and has not beensubject to any disputes, audits, investigations or claims concerning any Tax, whether such disputes, audits,investigations or claims are resolved, pending, threatened or potential, and neither Seller nor the Target Company hasany Knowledge of any circumstances that may give rise to such disputes, audits, investigations or claims.
(iv) The Target Company has been operated in such a manner that fully complies with all the terms, conditions,obligations and requirements under any applicable Laws, contracts, arrangement or waiver related to any Taxincentives or benefits (including without limitations, benefits related to HNTE Qualifications) available to the TargetCompany, and has validly and legally obtained all necessary approvals from relevant Governmental Authority forsuch Tax incentives.
(v) All prices paid and charged by the Target Company to any Related Party for goods or services have been at arm’slength, compliant with applicable Laws, and supported by comprehensive documentation required under applicableLaws, including through the completion and retention of any statutory records, invoices
and processes, and such documentation has been maintained in good order and properly and timely fulfilled anyrequired registration with relevant Governmental Authorities with regard to the pricing or arm’s length terms.
(t) Operation of the Business
Since the Target Company’s formation, it has engaged in the manufacture and sale of forklift trucks powered by internalcombustion engine, electricity and hydraulic power (the “ Products ”) (as listed under Schedule 5.2(v) ) at the Sites of theTarget Company, and shall continue to engage in such operation through the Closing Date.
(u) Sales and Trading
(i) Any and all of the transactions, sales, purchases, distributions and other dealings conducted by or relating to theTarget Company and any Affiliates or related individuals of the Target Company have been supported by fairconsideration, negotiated and contracted at arms’ length, and conducted in compliance with applicable Laws andregulations of the PRC.
(ii) As of the date of this Agreement, except for those contracts disclosed under Schedule 5.2(u) , there is no ongoing orunfinished agreements or commitments in any form or nature that obliges the Target Company to supply any productsto, provide any services to or facilitate any form of cooperation with PRC military (including but not limited to,military agencies, departments, companies, organizations, or associations, affiliates of military agencies, entities orindividuals in which PRC military has ownership or control, and military-related schools and institutions, collectively“ Military ”) or otherwise engage in business, operation or projects related to Military.
(v) Products
(i) The Products sold by the Target Company conform to, meet or exceed the standards required by all applicable Laws,ordinances and regulations now in effect. To Seller’s Knowledge, there is no pending legislation, ordinance orregulation which if adopted or enacted would have a Material Adverse Change on the manufacture of such Productsor the Target Company' businesses.
(ii) Schedule 5.2(v) contains a written statement accurately describing the Target Company' warranties and customerservice policies and any recurring warranty problems. The Target Company has no outstanding contracts or proposalsthat depart from the warranty and customer service policy and practice described in such Schedule.
(iii) No claims of customers or others based on an alleged or admitted defect of material, workmanship or design orotherwise in or in respect of any of the products of the Target Company are presently pending or threatened.
(w) Affiliates
Schedule 5.2(w) contains a complete and accurate list of all Affiliates of the Target Company (including without limitation,subsidiaries and branches) that have existed since the formation of the Target Company. Other than those listed underSchedule 5.2(w) , the Target Company has no other Affiliates (whether subsidiary, branch, office or any other type ofAffiliates) in or outside China.
ARTICLE VI COVENANTS AND POST-SIGNING ARRANGEMENT
Section 6.1 Covenants for the Interim Period
(a) Seller shall, and shall cause the Target Company to, undertake the following matters during the Interim Period:
(i) Seller shall have full and actual control of the Target Company during the Interim Period and shall cause the TargetCompany to carry on business in compliance with all applicable Laws, including Anti-Corruption Laws, and in theordinary and usual course of business, and in the same lawful manner and scope as of the Execution Date, includingmaintenance of all corporate and financial records and files;
(ii) The Target Company shall not allow or procure any event, conduct or act that would cause any Material AdverseChange to the Target Company, the Assets, the equity interest of the Target Company, Buyer or the transactionscontemplated herein;
(iii) The Target Company shall maintain the Assets in good condition and make such repairs as are necessary to permit thecontinued operation of the Target Company, and shall take all reasonable actions to preserve the full value of theAssets as reflected in Schedule 5.2(n) ;
(iv) The Target Company shall manage the working capital level in the ordinary and usual course of business as it wasmanaged before the Reference Balance Sheet Date, and shall take all reasonable actions to maintain the workingcapital at a normal level up to the Closing Date. For purpose of this Agreement, “normal level” of working capitalmeans at least RMB 50,000,000 and is calculated by subtracting those current liability items from those current assetitems shown and defined under Schedule 6.1 ;
(v) Seller shall, and shall cause the Target Company to, ensure that the Target Company’s payment of salaries andbonuses for all its employees and consultants are current and paid in compliance with applicable Laws of the PRC upto the Closing Date, and the Target Company’s payment of the social insurance contributions and housing fundcontributions is consistent with the applicable Laws.
(vi) Except as required by applicable Laws or otherwise agreed to by the Parties, the Target Company shall not, during theInterim Period, (1) make any material amendment to the terms and conditions of employment (including, withoutlimitation, remuneration, pension entitlements or other benefits) of any of its
employees (other than minor increases in salary in the ordinary course of business in accordance with normal practicewhich the Target Company shall notify to Buyer as soon as reasonably possible), (2) hire any employees (includingmanagement personnel and employees of other levels) or dismiss any employees without the prior written consent ofBuyer, or (3) make any payment or commitment to pay any severance, termination compensation, or other payment toany shareholders, managers, directors, employees, retirees, consultants, agents or other representatives of the TargetCompany without the prior consent of Buyer;
(vii) Without prejudice to the general principles set forth in other clauses under this Section 6.1, and unless otherwiseexpressly provided for in this Agreement or agreed by Buyer in writing in advance, the Target Company shall not,and Seller shall ensure that the Target Company shall not, during the Interim Period:
(A) increase or decrease the registered capital of the Target Company;
(B) change its business scope and nature, abandon or change any qualification, permit or license already obtainedand/or to be obtained by it, or cause such qualification, permit or license to lapse;
(C) invest in any other entities;
(D) incur or enter into any agreement or commitment involving any capital expenditure in excess of RMB125,000per item or RMB600,000 in the aggregate;
(E) other than the normal operation of business in respect of sales of inventory, acquire, sell, assign, lease, grant ofdispose of, or agree to acquire, sell, assign, lease, grant or dispose of, any significant Assets, includinginventory, or enter into or amend any significant Contract or arrangement regarding any Assets;
(F) borrow or raise any money or enter into any loan facility or otherwise incur any Indebtedness other than bonafide working capital borrowings in the ordinary and usual course of business and to the extent required to fundthe working capital requirements of the Target Company;
(G) purchase, lease or sublease, or amend or terminate any existing lease or sublease related to, any real propertyused in the business or operations of the Target Company;
(H) engage, either orally or in writing, any new distributor, sales representative or sales consultant, or make amaterial change in any existing distributor, sales representative or sales consultant agreement or arrangement,except in the ordinary course consistent with the previous 12 months activities prior to the Execution Date andupon prior notice to Buyer;
(I) create, incur or assume any Encumbrance on any part or all of the equity interest in the Target Company or theAssets or agree to do so, or enter into
any agreement to transfer, assign or otherwise dispose of any portion of the equity interest of the TargetCompany to any third party;
(J) renew, extend, roll over, incur, provide or create any new guarantee for the benefit of any third party, whetherrelated to unrelated;
(K) renew, extend, or roll over any existent guarantee for the benefit of any third party (whether related to unrelated)for over one (1) year or on less favorable terms or conditions to the Target Company;
(L) fail to comply with a material obligation under any Contract to which the Target Company is a party that wouldhave a Material Adverse Change on the Target Company; or
(M) enter into, terminate or amend any Contract, lease, license or commitment: (1) which is not capable of beingterminated without compensation at any time with three months’ notice or less; (2) which is not in the ordinaryand usual course of business; (3) other than on arms’ length terms; or (4) which involves or may involve annualexpense or aggregate expenditure in excess of RMB125,000.
Section 6.2 The Remaining Equity Interest of the Target Company
Unless expressly waived by Buyer in writing, as soon as practical after the Execution Date and prior to the Closing Date, Seller shallensure and cause that,
(a) the current 25% shareholder of the Target Company as of the date when the Closing Confirmation is issued will be a holdingcompany (the “ Holding Co ”) incorporated in Hong Kong, and such Holding Co will be owned by or in the actual control ofcurrent management personnel of the Target Company as consented by HY. In case Holding Co is not directly owned bysuch management personnel, Seller shall fully disclose to Buyer or its designated representatives all direct and indirectshareholding and ownership information of the Holding Co up to the ultimate controlling person;
(b) Holding Co will enter into a Shareholders Agreement with Buyer (“ Shareholders Agreement ”) substantially in the form asthe attached Appendix B before the Closing Date; and
(c) On or prior to Closing, all shareholder(s) of Holding Co will enter into a deed of share charge (“ Share Charge Deed ”) withBuyer pursuant to which, all shareholders of Holding Co are obliged to pledge and charge all of their shares in Holding Co toBuyer (“ Share Charge ”) to guarantee that:
(i) all the Related and Third Party Guarantees (as listed under Schedule 6.6 ) will be fully removed as soon as practicalbefore the deadlines set forth in the timetable under Schedule 6.6 without incurring any costs, losses or additionalliabilities to the Target Company;
(ii) the Target Company, Holding Co, Mr. Lu and all other Affiliates of Mr. Lu have been in full compliance withapplicable Anti-Corruption Laws prior to Closing; and
(iii) the Target Company, Holding Co, Mr. Lu and all other Affiliates of Mr. Lu will continue to fully comply with theAnti-Corruption Laws after Closing.
The Share Charge Deed shall include explicit clauses providing that, in the event that (i) any Related and Third PartyGuarantee is exercised or enforced against the Target Company, or any Related and Third Party Guarantee fails to be timelyremoved by the fourth (4 th ) anniversary of the Closing according to the timeline set forth in Schedule 6.6 , or (ii) the TargetCompany or Buyer incurs any fines, penalties, costs or losses due to a violation of the Anti-Corruption Laws by the TargetCompany, Holding Co, Mr. Lu or any other Affiliate of Mr. Lu, and the chargors fail to indemnify and hold Buyer harmlessfrom and against the full amount of any relevant losses, interest payments, fees, and damages arising from events (i) and/or(ii) above within sixty (60) days after Buyer notifies chargors of such events, Buyer will have an unconditional right toenforce the Share Charge and to claim damages arising from any such enforced Guarantees or any such fines, penalties, costs,interest payments, fees, damages or losses.
Section 6.3 Transfer of Samuk
As soon as practical after the Execution Date and prior to the Closing Date, Seller shall cause the Target Company to, (1) set up awholly-owned subsidiary of the Target Company (“ Sub ”), (2) try its best to persuade those selected employees of HangzhouSamuk Forklift Co., Ltd. (“ Samuk ”) listed in Schedule 6.3 to terminate their employment contracts with Samuk and enter into newemployment contracts with the Sub, without incurring severance payment to such employees, and (3) acquire, by itself or throughthe Sub (as determined based on the Parties’ agreement), all trademarks, other intellectual property rights and any other valuablefixed assets of Samuk as listed on Schedule 6.3 for a consideration not exceeding RMB 1,000,000, pursuant to which the key assetsof Samuk listed in Schedule 6.3 will become owned by the Sub on or before Closing. For the avoidance of doubt, the Purchase Pricepaid by Buyer hereunder includes and reflects the consideration for the acquisition of Samuk by the Target Company, and Buyer isnot obliged to pay any additional amount or any Taxes, duties or fees for the transfer of Samuk.
Section 6.4 Carve-Out of Shenzhen Maximal and Shanghai Maximal
(a) As soon as practical after the Execution Date and prior to the Closing Date, (i) Seller shall cause Mr. Lu to carve out and sellhis direct or indirect ownership, equity and interest in Shanghai Maximal Forklift Sales Co. (“ Shanghai Maximal ”) to anunrelated third party, and (ii) Seller shall, and shall cause the Target Company to, carve out and sell the Target Company’sownership, equity and interest in Shenzhen Maximal Forklift Sales Co., Ltd. (“ Shenzhen Maximal ”) to an unrelated thirdparty (the foregoing transactions under (i) and (ii) are collectively referred to as the “ Carve-Out ”). Seller shall indemnifyand hold the Target Company and/or Buyer harmless from any Taxes, fees or duties (other than the purchase price) levied onthe Target Company, Buyer or their respective Affiliates arising from or in connection with the Carve-Out.
(b) Upon completion of the Carve-Out, both Shenzhen Maximal and Shanghai Maximal shall be separated from the TargetCompany and become independent dealers of the Target Company. The dealer agreement between the Target Company andeach of Shenzhen Maximal and Shanghai Maximal shall include standard exclusivity provisions in template group dealercontracts of Buyer, the form of which is subject to the review and consent of Buyer.
Section 6.5 Intercompany Indebtedness
(a) As soon as practical after the Execution Date and prior to the Closing Date, Seller shall, and shall cause the Target Companyto, amend and re-sign the intercompany loan agreement between the Target Company and Seller, in a form reasonablysatisfactory to Buyer.
(b) Seller shall ensure that any and all Indebtedness (including but not limited to loans) owed by Seller to the Target Company (“KNSN Receivable ”, including without limitations, those listed under Schedule 6.5 ) shall be fully repaid and/or settled assoon as possible within one (1) month after the Closing Date. The Parties agree that any KNSN Receivable shall continue toaccrue interest until it is repaid in full.
Section 6.6 Related and Third Party Guarantees
(a) Seller and Buyer have agreed on the timeline and action plan for the removal and elimination of the Related and Third PartyGuarantees provided by the Target Company, which is attached hereto as Schedule 6.6 , subject to written amendments fromtime to time based on mutual consensus of the Parties. Seller shall, and shall cause its Affiliates and Related Parties(including without limitations, Mr. Lu) to, cause all the Related and Third Party Guarantees to be timely removed before thedeadlines set forth in Schedule 6.6 , without incurring any costs, losses or additional liabilities to the Target Company.Provided that the value of the Related and Third Party Guarantees is reduced to or under the annual cap amounts stipulated inSchedule 6.6 , the Parties may agree in writing to adjust the repayment timeline of certain Related and Third PartyGuarantees.
(b) Seller shall ensure that starting from the Execution Date, except for those guarantees as permitted to be renewed pursuant toSchedule 6.6 or except as otherwise agreed to by the Parties, the Target Company will not enter into, provide, extend, grantor renew any guarantee for any third party, whether related or unrelated to the Target Company or its
shareholders. In particular, the Parties agree that the Target Company will not extend, renew or grant any Related and ThirdParty Guarantee that fails to be timely released according to the timeline set forth in Schedule 6.6 . Any extension or renewalof any Related and Third Party Guarantee shall comply with Schedule 6.6 , and each extension or renewal shall not be formore than one (1) year and shall be on the same terms and conditions (or no less favorable terms and conditions) as theexistent Guarantee before the extension or renewal.
(c) As soon as practical after the Execution Date and prior to the Closing Date, Seller shall cause the Related and Third PartyGuarantees to be partially removed so that the total amount of the Related and Third Party Guarantees would be lowered toor under RMB 321,800,000 on or before the Closing Date with no remaining or additional liabilities to the Target Companyor Buyer arising from such removed Guarantees.
(d) Within three (3) months after the Closing Date, Seller shall ensure that the Related and Third Party Guarantees will bepartially removed as soon as possible pursuant to Schedule 6.6 with no remaining or additional liabilities to the TargetCompany or Buyer arising from such removed Guarantees, so that the total amount of the Related and Third PartyGuarantees will be lowered to or under RMB 147,950,000. In order to facilitate the performance of this Section 6.6(d), theParties shall cooperate with each other to sign and issue instructions to release the First Installment from Seller’s DesignatedAccount to the bank account(s) of the Target Company as repayment of the KNSN Receivable pursuant to Section 6.5 and tothe relevant bank accounts of creditors, lenders and guaranteed parties to remove the Related and Third Party Guaranteespursuant to Schedule 6.6 . Provided that (i) the KNSN Receivable is fully repaid pursuant to Section 6.5 and (ii) the portionof Related and Third Party Guarantees has been timely removed pursuant to Schedule 6.6 with no remaining or additionalliabilities to the Target Company or Buyer arising from such removed Guarantees, so that its total amount is lowered to orunder RMB 147,950,000 by the end of three (3) months after Closing, the Parties shall each sign and issue written instructionto release any and all balance amount of First Installment from Seller’s Designated Account to another account designated bySeller.
(e) Seller shall further ensure that any and all Related and Third Party Guarantees will be fully removed as soon as possiblewithin four (4) years after the Closing in accordance with the agreed timeline and action plan under Schedule 6.6 ; providedthat however, if by the third (3 rd ) anniversary of the Closing Date, any Related and Third Party Guarantees have not beenfully removed, an amount equivalent to the value of the unremoved Guarantee shall be kept in the Escrow Account andcannot be released to Seller under Section 8.4 until all the Related and Third Party Guarantees are fully removed.
Section 6.7 Adoption of Compliance Control Measures
(a) As soon as practical after the Execution Date and no later than the Closing Date, Seller shall, and shall cause the TargetCompany to, take and fulfill all the measures set forth in Schedule 6.7 (“ Compliance Measures ”) to improve the anti-bribery compliance and internal controls of the Target Company to an extent satisfactory to Buyer, as determined in Buyer’sreasonable discretion.
(b) Provided that Buyer honors its confidentiality obligations, Seller shall grant Buyer full access to the Target Company, theTarget Company’s records and systems, and the Target Company’s management and employees to enable Buyer to conductan audit (“ Compliance Audit ”) by Buyer’s designated employees, representatives and/or agents, so as to verify that theTarget Company has implemented the Compliance Measures to an extent satisfactory to Buyer.
Section 6.8 Certain Tax Matters
(a) Straddle Period Taxes. In the case of any taxable period that includes (but does not end on) the Closing Date (a “ StraddlePeriod ”), Seller shall be responsible for any and all Tax liabilities of the Target Company for the Straddle Period up to andincluding the Closing Date. Pursuant to Section 8.1, Buyer will compute the Tax liabilities of the Target Company as if ataxable period had ended on the Closing Date (including the corporate income tax liability of the Target Company forStraddle Period up to and including the Closing Date as estimated and accrued pursuant to PRC GAAP) and specify theamount of such tax liability in the Post-Closing Statement (the term is defined below in Section 8.1(b)). Such Tax liability ofthe Target Company for the Straddle Period up to and including the Closing Date shall be included in the calculation of theClosing Debt Amounts (as the term is defined below in Section 8.1(a)).
(b) Cooperation on Tax Matters/Audits
(i) Buyer shall have full control and take charge of the filing of tax returns pursuant to this Section 6.8 and any Tax-related audit, litigation or other proceeding related to the Equity Transfer and/or the Target Company, while Sellershall, and shall cause Holding Co and the Target Company (to the extent applicable) to, provide full cooperation andsupport to the preparation and filing of tax returns and any Tax-related audit, litigation or other proceeding. Suchcooperation shall include the retention and (at the other Party’s request) the provision of records and informationreasonably relevant to any such audit, litigation or other proceeding, as well as ensuring that relevant employees ofthe Target Company are available to provide additional information and explanation for such records and information.
(ii) Buyer shall promptly notify Seller in writing upon receipt by Buyer, any Affiliate of Buyer or the Target Company ofnotice of any pending or threatened Tax audits or assessments relating to the income, properties or operations of theTarget Company for any Tax period ending on or before the Closing Date. Seller shall promptly notify Buyer inwriting upon receipt by Seller of notice of any pending or threatened Tax audits or assessments relating to the income,properties or operations of the Target Company for any such period.
(c) Entity Classification Election
(i) Seller and Buyer shall promptly, and shall promptly cause any of their applicable Affiliates (including the TargetCompany) to, make or cause to be made a timely entity classification election pursuant to U.S. Treasury RegulationSection 301.7701-3(c) having an effective date as of the Closing Date and electing
partnership status with respect to the Target Company (the “ Entity Classification Election ”). At least ten (10) daysprior to the Closing, Seller shall deliver to Buyer all applicable IRS Forms 8832 (and all other forms or documentsrequired to effect the Entity Classification Election) duly completed and executed (except for execution by Buyer orapplicable Affiliate of Buyer) and in a form acceptable to Buyer (the “ Entity Classification Election Forms ”)༎Within seventy-five (75) days after the Closing Date, Buyer will duly execute the Entity Classification ElectionForms, as applicable, and promptly deliver to Seller a copy of each such duly executed Entity Classification ElectionForm.
(ii) Except to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of theInternal Revenue Code (or any similar provision of applicable national, local or non-US Law), Buyer and Seller shall,and shall cause their respective Affiliates to, (i) file all tax returns in a manner consistent with the EntityClassification Election and (ii) take no position contrary thereto in connection with any Tax proceeding or otherwise.In case Seller or the Target Company incurs any actual losses due to regulators’ penalties or orders as a result of theircooperation under this Section 6.8(c), Buyer shall compensate the actual losses of Seller or the Target Company.
Section 6.9 Employment Contracts
As soon as practical after the Execution Date and no later than the Closing Date, Seller shall cause the Target Company andeach of Mr. Lu, Barry Su, Liexin Zhu (and other individuals that the Parties agree upon in writing) to enter into, sign and deliver anEmployment Contract in the form attached hereto as Appendix D .
Section 6.10 Responsibilities to Facilitate the Closing
(a) Each Party agrees to use all reasonable efforts to take, or cause to be taken, all appropriate actions, do or cause to be done allthings necessary, proper or advisable under applicable PRC Laws, provide the other Party and its respective representativeswith all necessary documents, information and assistance, and to execute and deliver such documents and other papers, asmay be required to carry out the provisions of this Agreement and complete the items detailed herein to complete theClosing, including without limitations, to use best efforts to procure that all the conditions set forth in Section 7.1 below aresatisfied and fulfilled as promptly as possible after the Execution Date.
(b) In particular, during the Interim Period, if Buyer finds out (by itself or through a third party auditor) that any CP provided inSection 7.1 (except for obtaining the New Business License) fails to be satisfied, Buyer shall promptly inform Seller of suchfailure and Seller shall take timely and proactive actions to satisfy the relevant CP and endeavor to cause all CPs to besatisfied prior to the Outside Date (as defined in Section 12.1(b)(iv)).
Section 6.11 Transaction Documents
(a) Prior to the Closing Date, Seller shall, and shall cause the Target Company and the relevant Affiliates or Related Parties ofSeller to, execute the Escrow Agreement, the Shareholders Agreement, the Amended AOA, the Share Charge Deed, and theEmployment Contract (in addition to this Agreement) in the corresponding forms
attached hereto in the appendices. On or before the Closing Date, Seller shall cause a signed copy of all such TransactionDocuments to be delivered to Buyer.
(b) Prior to the Closing Date, Seller shall, and shall cause the Target Company and the relevant Affiliates of Seller to, agree withBuyer on the form and substance of the OEM and Licensing Agreement, the Technology License Agreement, the MaximalProduct Supply Agreement, the HY Component Supply Agreement, the Maximal Component Supply Agreement, theTechnical Service Agreement, and any other Transaction Documents related to the Equity Transfer the form of which arerequired to be agreed to by the Parties pursuant to this Agreement.
Section 6.12 Leased Land
(a) As soon as practical after the Execution Date, Seller shall use its best efforts to, and shall cause the Target Company to,obtain required, proper and valid approvals and permits that would allow the Target Company to legally use, occupy andlease the land parcel of approximately 4,000.02 square meters located at its operation Site to the west of the factory buildings(which was leased by the Target Company from the Fuyang local government with a lease term expiring by July 14, 2020).Upon and after the Closing, Seller shall continue to use its best efforts to ensure that the Target Company will be allowed tocontinue to use such land for a long term after the Closing (including after the lease expiration in 2020), without any impacton the continued ordinary operation of the Target Company, and shall use its best efforts to cause the Target Company tolegally obtain granted land use right to state-owned land with respect to such land as soon as practical which will allow theTarget Company to construct buildings and facilities on such land.
(b) In addition, Seller shall use its best efforts to cause the Target Company to obtain consents and support from the relevantgovernment authorities to ensure that the Target Company is allowed to legally use, occupy and lease the land parcel ofapproximately 14,333 square meters located at its operation Site (which is also leased by the Target Company from theFuyang local government with a lease term expiring by July 14, 2020; such land parcel together with the other land parcel of4,000.02 square meters described under Section 6.12(a) above are collectively referred to as the “ Leased Land ”) for a longterm after the Execution Date and after the Closing (including after the lease expiration in 2020), and ensure that the status ofcontinued use and occupation of such land will not impact the continued ordinary operation of the Target Company in anyway.
Section 6.13 EHS Covenants
(a) As soon as practical after the Execution Date, Seller shall use its best efforts to, and shall cause the Target Company to,obtain any and all missing or inadequate EHS Permits required for the operation of the Target Company, including but notlimited to the following:
(i) completing EIA process, preparing EIA report, and obtaining approvals from the competent level of environmentalauthorities on the EIA report for the heavy equipment assembly process performed in the No.5 workshop of theTarget Company, the recent changes to the facilities at the No. 4 factory building of the
Target Company and the surface treatment of forklift parts performed in the sandblast room in the north of the No.1workshop;
(ii) fulfilling PDR process for all the relevant operations of the Target Company, evidenced by an approval or filingvoucher issued by competent level of environmental authorities; and
(iii) obtaining PDP for all the relevant operations of the Target Company, or if PDP is not legally required, obtaining awritten confirmation from the level of environmental authorities to confirm PDP is not legally required.
(b) Upon and after the Closing, Seller shall continue to use its best efforts to cause the Target Company to obtain the EHSPermits and fulfill all such actions listed in Section 6.13(a) as soon as practical after the Closing.
(c) As soon as practical after the Execution Date and no later than the Closing Date, Seller shall ensure, and shall cause theTarget Company to ensure, that the Target Company shall complete all the required and reasonable rectification measureswith regard to its VOC substance (as described under Schedule 5.2(m) ) in accordance with the applicable Laws andenvironmental authorities’ requirements. In case such VOC rectification measures have not been completed pursusant to theapplicable Laws and environmental authorities’ requirements by the date the Closing Confirmation is issued, (i) Seller shallcontinue to cause and ensure that the Target Company would complete such VOC rectification measures in accordance withthe applicable Laws and environmental authorities’ requirements as soon as practical after the Closing, and (ii) Seller shall beresponsible for any and all costs, fees and penalties (if any) arising from the VOC rectification measures and process, andshall indemnify Buyer and hold Buyer harmless from and against any losses or costs associated with the VOC rectification,and such indemnity shall not be subject to or prejudiced by any other indemnity threshold or cap provisions in thisAgreement (including but not limited to the bucket clause under Section 10.1(b)).
Section 6.14 Seller’s Letter of Guarantee
As soon as practical after the Execution Date and no later than the Closing Date, Seller shall sign and deliver to Buyer a letter ofguarantee (“ Seller’s Guarantee Letter ”), pursuant to which Seller undertakes that in case any Related and Third Party Guaranteeis exercised or enforced against the Target Company, Seller shall unconditionally and immediately provide cash to pay off the loansand debt associated with the enforced Guarantee and indemnify the Target Company harmless from and against any such enforcedamount and any associated losses, costs, liabilities and interest payments incurred by the Target Company due to such enforcementof Guarantee. Seller’s Guarantee Letter shall be issued in such form and content as satisfactory to Buyer in its sole discretion. Theperformance of such Seller’s Guarantee Letter by Seller shall not be contingent upon, secondary to or prejudiced by the ShareCharge or any other security created in relation to the Related and Third Party Guarantees.
ARTICLE VII CLOSING
Section 7.1 Conditions Precedent to Closing
The obligations of Buyer to consummate the Closing of the Equity Transfer and pay the Purchase Price to Seller pursuant toSection 3.3 are subject to the satisfaction (as determined at Buyer’s reasonable discretion) of each of the following conditionsprecedent to Closing (“ CP s”), unless otherwise expressly waived by Buyer in writing:
(a) All the representations and warranties of Seller set forth hereunder are true, complete and not misleading in any materialaspects when made, throughout the Interim Period, and on and as of the Closing Date with the same effect as if suchrepresentations and warranties were made on and as of the Closing Date, and Seller has signed and issued a ClosingMemorandum to Buyer certifying that all such representations and warranties of Seller are all true, complete and notmisleading in any material aspects as of the Closing Date;
(b) Seller has, and has caused Mr. Lu, the Target Company or Seller’s other Affiliates and Related Parties to have, performedand complied with all agreements, obligations and covenants contained in the Transaction Documents that are required to beperformed or complied with by Seller or any of the aforementioned parties on or before the Closing Date;
(c) The Target Company has received all the third party consents and has issued all the notices to relevant third parties asrequired for the consummation of the transactions contemplated hereunder, including without limitation, consents from thebanks, guarantees, mortgagees and other relevant counter parties under those Material Contracts that contain “change ofcontrol” clauses set forth on Schedule 7.1(c) ;
(d) The Target Company and Seller have received and delivered to Buyer all regulatory approvals and filing certificates legallyrequired for the consummation of the Equity Transfer, including (1) the Registration Voucher issued by competent level ofMOFCOM indicating Buyer’s legal title to the Equity Interest and the approval or registration of the Amended AOA; (2) theNew Business License issued by competent level of SAIC and applicable SAIC registration records reflecting Buyer as a75% shareholder of the Target Company; (3) other registration records issued by SAIC evidencing the Amended AOA hasbeen approved and effective, and (4) the SAFE Approval issued by competent level of SAFE with regard to the receipt andsettlement of foreign exchange payment for equity transfer pursuant to Section 4.6;
(e) The Parties have executed, and have caused the Target Company or other relevant Affiliates and Related Parties to execute,this Agreement, the Escrow Agreement, the Shareholders Agreement, the Amended AOA, the Share Charge Deed, theEmployment Contract and any other Transaction Documents related to the Equity Transfer as required to be executedpursuant to this Agreement, and have delivered to the other Party executed originals of such documents;
(f) The Parties have agreed on the substance and form of the OEM and Licensing Agreement, the Technology LicenseAgreement, the Maximal Product Supply Agreement, the HY Component Supply Agreement, the Maximal ComponentSupply Agreement, the Technical Service Agreement, and any other Transaction Documents related to the Equity Transferthe form of which are required to be agreed to by the Parties pursuant to this Agreement;
(g) Prior to the Closing Date, there has been no Material Adverse Change to the Target Company, or the Assets or operation ofthe Target Company, including but not limited to the financial condition, operating results, business prospects, customerrelations, supplier relations and employees of the Target Company;
(h) 25% equity interest of the Target Company is owned by a shareholder consented by Buyer, as duly registered with SAIC andother applicable authorities, and all shareholders of such 25% shareholder have entered into a Share Charge Deed with Buyerand have set up, effectuated and registered (if so required) the Share Charge for the benefit of Buyer according to the Parties’agreement;
(i) The key assets of Samuk listed in Schedule 6.3 have been transferred to the Target Company or the Sub pursuant to Section6.3;
(j) Shenzhen Maximal and Shanghai Maximal have been carved out from the Target Company and become independent dealersseparate from the Target Company pursuant to Section 6.4;
(k) Seller and the Target Company have signed and delivered amended intercompany loan agreements in a form reasonablysatisfactory to Buyer pursuant to Section 6.5;
(l) Seller has partially removed the Related and Third Party Guarantees and lowered the total amount of the Related and ThirdParty Guarantees to or under RMB321,800,000 pursuant to Section 6.6, without incurring any costs, losses or remaining oradditional liability to the Target Company or Buyer;
(m) The Target Company has implemented the Compliance Measures in a manner and to an extent satisfactory to Buyer, asdetermined in Buyer’s reasonable discretion after an audit, pursuant to Section 6.7;
(n) Buyer has obtained approval from its bank(s) or other financing partners to support its payment of the total amount ofPurchase Price;
(o) The Target Company’s working capital has been adjusted and maintained at the normal level as defined in Section 6.1(a)(iv);
(p) All obligations and covenants in respect of the Entity Classification Elections pursuant to Section 6.8(c) have been satisfied;
(q) Seller has signed and delivered to Buyer Seller’s Guarantee Letter pursuant to Section 6.14; and
(r) Any other undertakings of Seller or Mr. Lu made in relation to the Equity Transfer that are required to be performed prior toClosing (including without limitatiosn, those pre-Closing undertakings in the Undertaking Letter) have been fully performedand satisfied.
Section 7.2 Closing
(a) Closing Confirmation
Within nine (9) months after the Execution Date, Buyer may choose to issue a written confirmation (“ ClosingConfirmation ”) to Seller confirming that, at Buyer’s reasonable discretion and belief, all the CPs set forth in Section 7.1(other than the issuance of the New Business License) have been satisfied or otherwise been waived by Buyer in whole or inpart. If Buyer believes any CP (other than the issuance of the New Business License) has not been satisfied, Buyer shall notbe obligated to issue the Closing Confirmation to Seller, and may inform Seller of the unsatisfied CP urging Seller to satisfysuch CP.
(b) Application for New Business License
As soon as practical and no later than three (3) Business Days after Buyer issues the Closing Confirmation to Seller, Sellershall, and shall cause the Target Company to, promptly fulfill the SAIC registration pursuant to Section 4.5 and obtain theNew Business License evidencing the Equity Transfer. Immediately upon the issuance of the New Business License, Sellershall provide Buyer with a scanned copy of the New Business License.
(c) Date of Closing
The Closing contemplated under this Agreement shall take place on the first date of the month immediately after the monthof the Business License Date. The effective time of Closing shall be 12:01 AM (00:01) Beijing time on the date determinedabove. The time and date of the Closing is referred to in this Agreement as the “ Closing Date ”.
(d) Actions on the Closing Date
(i) On the Closing Date, provided that Buyer has issued the Closing Confirmation pursuant to Section 7.2(a) and theNew Business License has been issued to the Target Company pursuant to Section 4.5(a), Buyer shall pay the FirstInstallment to Seller’s Designated Account and the Escrow Amount to the Escrow Account pursuant to Section 3.3.
(ii) On the Closing Date, unless otherwise waived in writing by Buyer, Seller shall, and shall cause the Target Companyto, deliver to Buyer the following items: (i) evidences indicating that all the CPs under Section 7.1 have been properlysatisfied, (ii) where applicable, original(s) of the certificates, approvals, licenses, registrations documents, executedagreements, and other documents as required under Section 7.1, including without limitations, originals of theMOFCOM Registration Voucher and New Business License; and (iii) all Books and Records of the Target Company,as well as all the company chop, financial chop, contract chop, invoice chop and any other chops of the TargetCompany.
(iii) On the Closing Date, the Parties shall jointly conduct a stock take and fixed assets check on the Target Company. Theresult of such inventory and asset check will be used to calculate the Closing Working Capital (defined in Section8.1(a) below) and other amounts needed to complete the Post-Closing Statement (defined in Section 8.1(b) below).
ARTICLE VIII POST-CLOSING UNDERTAKINGS
Section 8.1 Adjustment to Purchase Price
(a) Schedule 8.1 sets forth a calculation of the working capital, the cash amounts and the debt amounts of the Target Company asof the Reference Balance Sheet Date (the “ Sample Closing Statement ”), including the classification of asset and liabilityline items and general ledger accounts. The Sample Closing Statement shall be prepared in accordance with PRC GAAP. Inaddition, for purposes of this Agreement, the following terms shall have the following meanings respectively:
• “ Working Capital Adjustment Amount ” means an amount (which may be a positive or negative amount or zero)equal to (a) if the Closing Working Capital is greater than RMB 50 million, 75% of the balance of the Closing WorkingCapital minusRMB 50 million, (b) if the Closing Working Capital is less than RMB 50 million, the Closing WorkingCapital minusRMB 50 million, or (c) zero if the Closing Working Capital is equal to RMB 50 million.
• “ Closing Cash Amounts ” means all cash (as recorded in normal ledger) and cash equivalents, bank and otherdepositary accounts and safe deposit boxes, certificates of deposit, government bills or bonds owned by the TargetCompany as of Closing. For the avoidance of doubt, the Parties agree that the Closing Cash Amounts shall be calculatedbased on only those “cash and cash like items” listed in the Sample Closing Statement in Schedule 8.1 attached hereto.
• “ Closing Debt Amounts ” means the aggregate amount of the following owed by the Target Company as of Closing,without duplication: (a) the outstanding principal amount of any indebtedness for borrowed money, including all accruedbut unpaid interest thereon; (b) all other obligations evidenced by bonds, debentures, notes or similar instruments ofindebtedness, including all accrued but unpaid interest thereon; and (c) all direct obligations under letters of credit andguarantees, in each case solely to the extent drawn. For the avoidance of doubt, the Parties agree that: (i) the Closing DebtAmounts shall be calculated based on only those “debt and debt like items” listed in the Sample Closing Statement inSchedule 8.1 attached hereto; and (ii) the “tax payable” item listed in the Sample Statement will include the tax liabilityof the Target Company for the Straddle Period up to and including the Closing Date calculated pursuant to Section 6.8(a).
• “ Closing Working Capital ” means the net working capital of the Target Company as of Closing, calculated bysubtracting (a) the sum of the amounts as of such time for the current liability line items and the general ledger accountsshown on the Sample Closing Statement for the Target Company, from (b) the sum of the amounts as of such time for thecurrent asset line items and general ledger accounts shown on the Sample Closing Statement for the Target Company, ineach case determined in accordance with the PRC GAAP; provided , however , that in no event shall “Closing WorkingCapital” include any amount included within the definition of Closing Cash Amounts or Closing Debt Amounts. For theavoidance of doubt, the Parties agree that the Closing Working Capital shall be calculated based on only those “WorkingCapital” items listed in the Sample Closing Statement in Schedule 8.1 attached hereto.
(b) As promptly as reasonably possible and in any event within ninety (90) days after the Closing Date, Buyer shall prepare orcause to be prepared, and will provide to Seller, a written statement (the “ Post-Closing Statement ”), setting forth theWorking Capital Adjustment Amount, the Closing Cash Amounts and the Closing Debt Amounts. The Post-ClosingStatement shall set forth in reasonable detail the Buyer’s calculations of such amounts in a manner consistent with theSample Closing Statement and shall be prepared in accordance with the PRC GAAP.
(c) Within 30 days following receipt by Seller of the Post-Closing Statement, Seller shall deliver written notice to Buyer of anydispute Seller has with respect to the calculation, preparation or content of the Post-Closing Statement (the “ Dispute Notice”); provided, that if Seller does not deliver any Dispute Notice to Buyer within such 30 day period, the Post-ClosingStatement will be final, conclusive and binding on the Parties. The Dispute Notice shall set forth in reasonable detail (i) anyitem on the Post-Closing Statement that Seller disputes and (ii) the proposed amount of such item. Upon receipt by Buyer ofa Dispute Notice, Buyer and Seller shall negotiate in good faith to resolve any dispute set forth therein. If Buyer and Sellerfail to resolve any such dispute within thirty (30) days after delivery of the Dispute Notice (the “ Dispute Resolution Period”), within ten (10) Business Days following the expiration of the Dispute Resolution Period, the Parties shall jointly selectand engage one of the internationally recognized Big Four accounting firms (who shall not be the then public accountant ofHYG, the “ Independent Accounting Firm ”) to resolve any such dispute.
(d) The “ Final Purchase Price ” shall mean the Purchase Price, plus(i) the Working Capital Adjustment Amount, plus(ii) 75% of the Closing Cash Amounts, minus(iii) 75% of the Closing Debt Amounts, in each of cases, (i), (ii) and (iii), as finallydetermined pursuant to Sections 8.1(b) and (c).
(e) If the Purchase Price shall exceed the Final Purchase Price, then Seller shall pay or cause to be paid an amount in cash equalto such excess to Buyer by wire transfer of immediately available funds to an account or accounts designated in writing byBuyer to Seller; or if the Final Purchase Price shall exceed the Purchase Price, then Buyer shall pay or cause to be paid anamount in cash equal to such excess to Seller by wire transfer of immediately available funds to an account or accountsdesignated in writing by Seller to Buyer. Any such payment is to be made within five (5) Business Days of the date on whichthe Final Purchase Price is finally determined pursuant to this Section 8.1, except as expressly otherwise agreed by theParties in writing. To the extent any such adjustment payment under Section 8.1 cannot be made due to Chinese foreignexchange restrictions or other Chinese regulatory restrictions, the Parties shall take all necessary actions to ensure that theadjustment payment can be made or otherwise settled within thirty (30) days after the Final Purchase Price is finallydetermined pursuant to this Section 8.1 (including without limitation taking all necessary actions to obtain governmentapprovals for amending this Agreement or to adjust or offset any amounts owed under any other Transaction Documents toeffectively make the adjustment payment as described in this Section 8.1).
Section 8.2 Non-Solicitation
Seller shall, and shall cause their relevant Affiliates and/or Related Parties to, unless agreed otherwise by the Parties or with the priorwritten consent of Buyer, refrain from engaging in the following activities during the Interim Period and within 5 years after theClosing Date:
(a) directly or indirectly employing, engaging or seeking to employ or engage, through solicitation, recruitment or otherwise, anyindividual employed by, or providing services related to the Target Company’s business to, the Target Company or Buyer, orotherwise soliciting such individual to terminate his or her employment with the Target Company or Buyer; or
(b) directly or indirectly soliciting, enticing or causing any individual who is or has been a supplier or customer of the TargetCompany or Buyer to cease or substantially decrease its business with the Target Company or Buyer.
Section 8.3 Non-Competition
(a) Seller hereby undertakes that it shall, and shall cause its Affiliates and Related Parties to, unless agreed otherwise by theParties or with the prior consent of Buyer, refrain from engaging the following during the Interim Period and for a period of 5years after the Closing Date:
(i) engaging directly or indirectly in any competitive business activities involving or relating to the business of theTarget Company; or
(ii) establishing, or owning any equity interest in any entity that manufactures any or all of the Products of the TargetCompany as provided in Section 5.2(v) of this Agreement or products that could reasonably be contemplated tocompete with the products of the Target Company as provided in Section 5.2(v) of this Agreement, or participating inthe production, assembly, distribution and/or sale of such products, in any capacity, other than through the TargetCompany in their capacities as equity owners, employees or managers of the Target Company.
(b) Seller further agrees to cause Mr. Lu, Barry Su, Liexin Zhu and other applicable personnel as agreed to between the Parties tocomply with and be bound by those non-competition undertakings made under their Employment Contracts.
Section 8.4 Release of Escrow Amount
(a) ReleaseofTheFirstEscrowPayment. The First Escrow Payment may be released to Seller from the Escrow Account on thesecond anniversary of the Closing Date pursuant to Section 3.3(b), provided that each of the following conditions is satisfied,or otherwise explicitly waived by Buyer:
(i) All the representations and warranties of Seller set forth hereunder and under Seller’s Guarantee Letter as well as allrepresentations and warranties made under the Undertaking Letter are true, complete and not misleading in anymaterial aspects when made, throughout the period from Execution Date to the second anniversary of the ClosingDate, and on and as of the second anniversary of the Closing Date with the same effect as if such representations andwarranties were made on and as of such date;
(ii) Up to the second anniversary of the Closing Date, Seller, Mr. Lu, and the Target Company have performed andcomplied with all agreements, obligations and covenants contained in the Transaction Documents (including withoutlimitations, this Agreement, Seller’s Guarantee Letter and the Undertaking Letter) that are required to be performedor complied with by them respectively;
(iii) There has been no violation or breach of any applicable Laws, undertakings and covenants contained in thisAgreement or any other documents signed by Seller, Mr. Lu or their respective Affiliates and Buyer for this EquityTransfer, including without limitations, the Anti-Corruption Laws by the Target Company, Seller, Holding Co, Mr.Lu or any other Affiliates of Seller prior to Closing, and no Loss (as defined below in Section 10.1(a)) related to theAnti-Corruption Laws has arisen out of or in connection with the operation of the Target Company prior to Closing;
(iv) There has been no violation or breach of any applicable Laws, undertakings and covenants contained in thisAgreement or any other documents signed by Seller, Mr. Lu or their respective Affiliates and Buyer for this EquityTransfer, including without limitations, the Anti-Corruption Laws by the Target Company, Seller, Holding Co, Mr.Lu or any other Affiliates of Seller throughout the two-year period following the Closing Date, and no Loss related tothe Anti-Corruption Laws (excluding those losses attributable to Buyer) has arisen out of or in connection with theoperation of the Target Company throughout such two-year period;
(v) Buyer has received from Seller a copy of the tax clearance certificate (or similar documentation issued by the localtax authority) proving that Seller have paid in full its Chinese Taxes (including but not limited to Chinese capital gaintaxes) payable for the Equity Transfer and the receipt of the Purchase Price according to applicable Laws; and
(vi) All KNSN Receivables have been fully repaid and/or settled pursuant to Section 6.5 and the relevant portion of theRelated and Third Party Guarantees have been removed pursuant to the timeline and action plan under Schedule 6.6 ,without incurring costs, losses or remaining or additional liabilities to the Target Company or Buyer.
(b) ReleaseofTheSecondEscrowPayment. The Second Escrow Payment may be released to Seller from the Escrow Accounton the third anniversary of the Closing Date pursuant to Section 3.3(b), provided that each of the following conditions issatisfied, or otherwise explicitly waived by Buyer:
(i) All the representations and warranties of Seller set forth hereunder and under Seller’s Guarantee Letter as well as allrepresentations and warranties made under the Undertaking Letter are true, complete and not misleading in anymaterial aspects when made, throughout the period from Execution Date to the third anniversary of the Closing Date,and on and as of the third anniversary of the Closing Date with the same effect as if such representations andwarranties were made on and as of such date;
(ii) Up to the third anniversary of the Closing Date, Seller, Mr. Lu and the Target Company have performed andcomplied with all agreements, obligations and covenants contained in the Transaction Documents (including withoutlimitations, this Agreement, Seller’s Guarantee Letter and the Undertaking Letter) that are required to be performedor complied with by Seller and the Target Company respectively;
(iii) There has been no violation or breach of any applicable Laws, undertakings and covenants contained in thisAgreement or any other documents signed by Seller, Mr. Lu or their respective Affiliates and Buyer for this EquityTransfer, including without limitations, the Anti-Corruption Laws by the Target Company, Seller, Holding Co, Mr.Lu or any other Affiliates of Seller prior to Closing, and no Loss related to the Anti-Corruption Laws and anti-briberycompliance has arisen out of or in connection with the operation of the Target Company prior to Closing;
(iv) There has been no violation or breach of any applicable Laws, undertakings and covenants contained in thisAgreement or any other documents signed by Seller, Mr. Lu or their respective Affiliates and Buyer for this EquityTransfer, including without limitations, the Anti-Corruption Laws, by the Target Company, Seller, Holding Co, Mr.Lu or any other Affiliates of Seller through the three-year period following the Closing Date, and no Loss related tothe Anti-Corruption Laws (excluding those losses attributable to Buyer or Buyer) has arisen out of or in connectionwith the operation of the Target Company throughout such three-year period; and
(v) The relevant portion of the Related and Third Party Guarantees have been removed pursuant to the timeline andaction plan under Schedule 6.6 , without incurring costs, losses or remaining or additional liabilities to the TargetCompany or Buyer; provided that however, if by the third anniversary of the Closing Date, any Related and ThirdParty Guarantees have not been removed, an amount equivalent to the value of the unremoved Guarantee shall bekept in the Escrow Account and cannot be released to Seller after all the Related and Third Party Guarantees are fullyremoved.
(c) During the twenty-third (23 rd ) month after the Closing Date, Buyer shall give a written notice to Seller indicating whetherBuyer believes that all conditions in Section 8.4(a) have been satisfied. Similarly, during the thirty-fifth (35 th ) month afterthe Closing Date, Buyer shall give a written notice to Seller indicating whether Buyer believes that all conditions in Section8.4(b) have been satisfied. To the extent Buyer agrees that all conditions under Section 8.4(a) and/or 8.4(b) have beensatisfied, as the case may be, the Parties shall cooperate with each other to sign and instruct the release of The First EscrowPayment and The Second Escrow Payment, as the case may be, to Seller in accordance with the Escrow Agreement.
(d) Upon receipt of each of the written notices of Buyer under Section 8.4(c), Seller shall have thirty (30) days thereafter toreview Buyer’s claims (if any). Buyer and Seller shall attempt to resolve in good faith any disputed items during each of suchthirty-day period through negotiation or mediation. In the event there is any dispute between the Parties at the end of thethirty-day period regarding whether the conditions set forth in Section
8.4(a) or Section 8.4(b) have been satisfied or otherwise explicitly waived by the Buyer, either Buyer or Seller may refersuch disputed items to the arbitration tribunal in accordance with Section 11.2 of this Agreement for final resolution. TheParties shall continue to hold the respective portion of Escrow Amount in the Escrow Account until the dispute has beensettled or otherwise resolved through arbitration. If it is finally determined through arbitration that Buyer is obligated to paythe relevant portion of the Escrow Amount to Seller under Sections 3.3(b) and 8.4(c), such payment shall be made by wiretransfer of immediately available funds to Seller within thirty (30) Business Days after the final determination of thearbitration tribunal. If it is finally determined through arbitration that Buyer is not obligated to pay the relevant portion of theEscrow Amount to Seller under Sections 3.3(b) and 8.4(c), Seller shall provide its full cooperation to Buyer and sign allnecessary documents to instruct and effect the release of the relevant portion of the Escrow Amount to Buyer’s designatedaccount. If either Party fails to timely sign necessary documents to instruct and effect the release of relevant portion of theEscrow Amount to the other Party pursuant to this Section 8.4(d), the other Party may initiate arbitration pursuant to Section11.2 to enforce the release and claim for its losses and damages caused by such delay (including reasonable interests accruedduring the period of the delay and arbitration). After the arbitration tribunal has issued an award ordering either Party torelease any Escrow Amount to the other Party, if such Party fails to follow the arbitration award and take actions to facilitatethe release of any Escrow Amount according to the arbitration award, such Party shall be liable to pay the other Party adelayed-payment penalty accrued on a daily basis for the period from the date when such arbitration award is issued to thedate when the due Escrow Amount is released to the other Party according to the arbitration award, and the daily payableamount of such penalty shall be equal to the overdue and unpaid Escrow Amount multiplied by the annual interest rate forone-year loans published by the People’s Bank of China applicable to the date of the arbitration award.
Section 8.5 Acquisition of Hyster-Yale Shanghai Operation
As soon as practical after the Closing, Buyer shall work with Holding Co to cause that the Target Company acquire the operationalassets (excluding land use rights and buildings) of Shanghai Hyster-Yale Forklift Manufacture Co., Ltd. (“ Shanghai HY ”)pursuant to terms and conditions approved by the Board of Directors of the Target Company and agreeable to Shanghai HY. Thepricing for such acquisition shall be determined by an independent external appraiser jointly selected and appointed by Holding Coand Buyer pursuant to the Shareholders Agreement.
ARTICLE IX EXPENSES AND TAX
Section 9.1 Expenses and Tax
Each Party shall bear its own expenses in negotiating and concluding this Agreement and other relevant transaction and applicationdocuments in connection with the Equity Transfer, and shall bear liability for and assume all Taxes relating to the transactionscontemplated herein that it is required to pay or assume under applicable Laws.
ARTICLE X INDEMNITY AND LIABILITY
Section 10.1 Indemnity
(a) Seller agrees to indemnify, defend and hold Buyer, its directors, officers, employees, subsidiaries, Affiliates and thesuccessors and assigns of any of the foregoing (“ Buyer’s Indemnitees ”) harmless from and against any and all claims,liabilities, obligations, demands, damages, losses, costs, expenses (including reasonable attorneys’ fees), fines, penalties,judgments and amounts paid in settlement imposed on, asserted against or incurred by Buyer's Indemnitees with a value inexcess of USD200,000 (collectively, “ Losses ”) arising from, in connection with, resulting from or incident to any matters orissues relating to the formation, activities, management or operation of the Target Company, provided that any indemnifiableLosses incurred by directors, officers or employees of Buyer shall be limited to such Losses arising from or in connectionwith the formation, activities, management or operation of the Target Company prior to the Closing Date. For purpose of thisclause, the indemnifiable Losses include but are not limited to the following:
(i) Any breach of any representation, warranty, covenant, obligation or agreement of Seller in this Agreement, anySchedule, or any document or agreement furnished or to be furnished by Seller or the Target Company under thisAgreement, or any breach of any representation, warranty, covenant, obligation or agreement under Seller’sGuarantee Letter or the Undertaking Letter;
(ii) Any claims, demands, lawsuits, investigations, proceedings or actions by any third party containing or relating toallegations that, if true, would constitute a breach of, or misstatement in, any one of the representations and warrantiescontained in Article V;
(iii) Any liabilities, claims, penalties, investigations, prosecutions, proceedings or actions related to or arising from analleged or actual violation of the Anti-Corruption Laws or export control Laws arising from or in connection with theformation, action, management or operation the Target Company prior to the Closing Date, regardless of whether anysuch violation has been disclosed by Seller or Mr. Lu to Buyer or its representatives;
(iv) Any liabilities, claims, fees, costs, penalties, investigations, prosecutions, proceedings or actions related to or arisingfrom the Target Company’s ownership, occupation, use, lease or construction on any Real Property, including but notlimited to any liabilities, claims, fees, costs, penalties, investigations, prosecutions, proceedings or actions relating tothe lack of proper approvals and certificates for the Leased Land;
(v) Any compensation, wages, salaries, bonuses, overtime-work compensation, vacation pay, holiday pay, severance,profit sharing, supplemental unemployment, retirement and pension benefits, penalties or similar payments or costsrelating to any employees of the Target Company or arising out of the Target Company's duties, commitments and/orobligations as an employer, on or prior to the Closing Date which arises from or is related to any claim, demand,order, action or penalty raised or imposed by a third party, including but not limited to any liabilities, claims, fees,costs, penalties, investigations,
prosecutions, proceedings or actions related to or arising from the Target Company’s obligation to timely andsufficiently pay social insurance and housing funds for its employees in accordance with the applicable Laws prior tothe Closing Date;
(vi) Any and all liabilities for Taxes (including but not limited to any clawed-back Tax benefits or any unpaid orunderpaid Taxes) of the Target Company or Seller as required by competent tax authority which accrues, arises, or inany way results from or determined with respect to or in any way is relating to or referenced by any period prior tothe Closing Date;
(vii) Any liabilities, claims, penalties, losses, interest payments, fees, damages, investigations, prosecutions, proceedingsor actions related to or arising from any Related and Third Party Guarantees;
(viii) Any product defect and/or product liability, in whole or in part, asserted by the relevant parties entitled to make suchclaim within three (3) years after the Closing Date, regardless of when a claim therefor is asserted, for productsmanufactured, distributed and/or sold on or prior to the Closing Date including, but not limited to, claims for personalinjuries, property damage and economic loss and/or liability arising out of or related to the manufacture, distributionand/or sale of products by the Target Company or the Target Company's agents or representatives on or prior to theClosing Date;
(ix) Any claims by employees of the Target Company for injuries sustained and/or disease incurred when working for orrelated to the Target Company on or prior to the Closing Date, regardless of when a claim therefor is asserted,;
(x) The generation, transportation, placement, storage, treatment, use and/or disposal by the Target Company or anypredecessor(s) of the Target Company of any Hazardous Substances, pollution, emission or wastes, as defined byapplicable Laws, or other materials prior to the Closing Date at any Site, facility and/or Real Property; and
(xi) Any liabilities, claims, penalties, investigations, prosecutions, proceedings or actions related to or arising from analleged or actual violation of environmental Laws (including but not limited to any failure in obtaining, maintaining,filing of or renewing any EHS Permit) arising from or in connection with the formation, activities, management oroperation of the Target Company prior to the Closing Date, regardless of whether any such violation has beendisclosed by Seller or Mr. Lu to Buyer or its representatives.
(b) For purpose of this Section 10.1, to the extent the value of a Loss or a series of Losses is lower than USD200,000 (includingUSD200,000), Seller will not be obliged to indemnify any of Buyer’s Indemnitees pursuant to this Section 10.1; however,once the aggregate amount of any Loss or any series of Losses exceeds USD200,000, Seller shall be obliged and liable toindemnity Buyer’s Indemnitees from and against the entire amount of any and all Losses (i.e., from the first dollar).
(c) All of the representations and warranties contained in this Agreement shall survive the Closing Date and continue in fullforce and effect for three (3) years after the Closing Date, except that, however, representations and warranties related tointellectual property, compliance with laws, anti-corruption, environmental, employment, and taxes (under Sections 5.2(f),(j), (k), (l), (m), (r), and (s) herein) shall survive their respectively statutes of limitation under Applicable Laws.
(d) In case any indemnifiable Losses arises, Buyer shall first deduct the amount of such Losses from any balance of the EscrowAmount in the Escrow Account (as defined under Section 3.3(b)) at the time of the Losses occurrence; provided that, if theamount of the relevant Losses is unclear to Buyer, Buyer may suspend releasing the Escrow Amount until the amount of theLosses is confirmed. If the balance of the Escrow Amount available for deduction is insufficient to cover the entire value ofthe indemnifiable Losses, Buyer is entitled to claim its Losses against Seller and ask Seller to indemnify Buyer from andagainst such Losses pursuant to Section 10.1.
Section 10.2 Defense against Third-Party Claims
In the event there is a claim or the service of a summons or other initial legal process in any action relating to this Agreement (a “Third-Party Claim ”) against Seller or the Target Company which might trigger Seller’s responsibility and obligations to indemnifyBuyer or Buyer’s Indemnitees under Section 10.1 of this Agreement, Buyer and Seller shall have the right at any time to be informedin advance of such Third-Party Claim, the conduct of the defense against such Third-Party Claim that will be followed, the status ofthe claim and any other information that relevant Party may reasonably request.
Section 10.3 No Waiver
Any remedy conferred on any Party hereto for any other Party’s breach of this Agreement (including the breach of anyrepresentations, warranties and undertakings) shall be in addition and without prejudice to all other rights and remedies available toit. No failure or delay by any Party hereto to exercise any remedy shall operate as a waiver thereof nor shall any single or partialexercise of any remedy preclude any further exercise thereof or the exercise of any other remedy.
ARTICLE XI APPLICABLE LAW AND DISPUTE RESOLUTION
Section 11.1 Applicable Law
The formation, validity, interpretation, execution, enforcement, performance, amendment and termination of this Agreement shall begoverned by the published laws of PRC (excluding the laws of Taiwan, Hong Kong and Macau).
Section 11.2 Dispute Resolution
(a) In case of any disputes arising from or in connection with the validity, interpretation, performance, implementation ortermination of this Agreement, the Parties shall try to resolve such dispute through friendly consultations.
(b) If a dispute cannot be resolved through friendly consultations within thirty (30) days from the date a Party gives the otherParty written notice of such dispute, such dispute shall be resolved exclusively by arbitration under the auspices of HongKong International Arbitration Centre (“ HKIAC ”) in accordance with the arbitration rules of the HKIAC in force at thetime of the request for arbitration.
(c) Arbitration shall take place in Hong Kong at the HKIAC. The arbitration proceeding shall be conducted in English. Thearbitral tribunal shall consist of three (3) arbitrators, with one arbitrator to be appointed by Seller, one arbitrator to beappointed by Buyer, and the third arbitrator to be appointed by the Chairman or Deputy Chairman of HKIAC. The thirdarbitrator cannot currently hold, or have previously held, U.S. citizenship or PRC citizenship.
(d) The arbitration award shall be final and binding on the Parties and shall not be subject to any appeal, and the Parties shall bebound thereby and shall act accordingly. Judgment on the award of the arbitrators may be enforced by any court ofcompetent jurisdiction. The losing Party, as determined by the arbitrators, shall pay all out-of-pocket expenses incurred bythe prevailing Party (including legal fees), as determined by the arbitrators in connection with any such dispute.
ARTICLE XII GENERAL PROVISIONS
Section 12.1 Effectiveness and Termination
(a) This Agreement shall become effective upon execution by the authorized representatives of the Parties.
(b) This Agreement may be terminated prior to the Closing Date under any of the following circumstances:
(i) by unanimous consent of the Parties;
(ii) by a non-breaching Party in case of a material breach of this Agreement, Seller’s Guarantee Letter or the UndertakingLetter that is not cured or duly remedied by a breaching Party within thirty (30) Business Days after written noticethereof from a non-breaching Party or within another period as agreed by the Parties;
(iii) by Buyer if any part of the Seller Warranties were not true and accurate at and as of the Execution Date or become nolonger true or accurate;
(iv) by either Party on or after the expiration of nine (9) months after the Execution Date (the date when such 9 monthperiod expires is hereinafter referred to as the “ Outside Date ”) if Buyer has not issued the Closing Confirmation toSeller pursuant to Section 7.2(a) prior to such Outside Date; provided, however, that if the Closing Confirmation hasnot been issued as a result of a breach of a representation, warranty, Transaction Document or covenant by any Partyhereto, such breaching Party shall not be entitled to terminate this Agreement;
(v) by either Party on or after the one and twentieth (120 th ) day after the issuance of Closing Confirmation if the NewBusiness License has not been issued prior to such date; provided, however, that if the New Business License has notbeen issued as a result of a breach of a representation, warranty, Transaction Document or covenant by any Partyhereto, such breaching Party shall not be entitled to terminate this Agreement; or
(vi) by either Party, in case of a Force Majeure Event, as defined in Section 12.10 below, continues for one hundred andeighty (180) days and prevents the Parties from consummating the transactions contemplated herein.
(c) In the event Buyer chooses to terminate this Agreement in accordance with paragraphs (ii) of Section 12.1(b), withoutlimiting Buyer’s right to claim damages and unless otherwise agreed to by the Parties:
(i) Seller shall be liable to indemnify and compensate Buyer, on demand, an amount equal to all actual Losses (includinglegal fees, professional advisors’ or consultants’ fees and other reasonable costs actually incurred) incurred by Buyerdue to such termination;
(ii) all relevant obligations of Buyer under this Agreement, including without limitations, the obligation to pay thePurchase Price, shall immediately cease and no longer be binding on Buyer; and
(iii) any Purchase Price already paid by Buyer under this Agreement shall be immediately refunded to Buyer.
(d) In the event Seller chooses to terminate this Agreement in accordance with paragraph (ii) of Section 12.1(b), without limitingSeller’s right to claim damages and unless otherwise agreed to by the Parties:
(i) Buyer shall be liable to indemnify and compensate Seller, on demand, an amount equal to all actual Losses (includinglegal fees, professional advisors’ or consultants’ fees and other reasonable costs actually incurred) incurred by Sellerdue to such termination; and
(ii) all relevant obligations of Seller under this Agreement shall immediately cease and no longer be binding on Seller.
(e) The Parties agree that any Losses indemnifiable by either Party pursuant to Section 12.1(c) or 12.1(d) above shall not exceedUSD2,000,000.
(f) In the event this Agreement is terminated pursuant to Section 12.1(b), without prejudice to any rights and remedies availableto the Parties under this Agreement or applicable Laws, the Parties shall take, or cause to be taken, all necessary actions,including but not limited to, obtaining all necessary approvals and consents from the relevant Governmental Authorities andcomplete all registrations with the relevant registration authorities (including but not limited to SAIC), to unwind the EquityTransfer or any other actions or transactions that have been completed pursuant to this Agreement.
(g) Except as provide in Section 12.1(f), upon any termination of this Agreement pursuant to Section 12.1(b), no Party shallthereafter have any further liability or obligation hereunder except for liability arising for any breaches of this Agreementprior to such termination; provided, however, that Section 12.1(f) and the confidentiality obligations under Section 12.5 shallremain in full force and effect to bind the Parties.
Section 12.2 Amendment and Modification of this Agreement
No amendment or modification of this Agreement, whether by way of addition, deletion or other change of any of its terms, shall bevalid or effective unless a variation is agreed to in writing and signed by authorized representatives of each of the Parties.
Section 12.3 Assignment and Succession
Unless otherwise expressly and specifically stipulated herein, the rights and obligations of each Party under this Agreement shall notbe assigned to a third party without the prior written consent from the other Party; however, Buyer may assign, without priorapproval from the other Party, rights and obligations of Buyer under this Agreement to one or more Affiliates directly or indirectly100% owned by Buyer provided that such assignee assumes and accepts all the covenants and obligations of Buyer under thisAgreement. The provisions of this Agreement shall be binding upon and inure to the benefit of the Parties and their respectivesuccessors .
Section 12.4 Severability
If one or more of the provisions of this Agreement is for any reason whatsoever held invalid or unenforceable, such provisions shallbe deemed severable from the remaining covenants, agreements and provisions of this Agreement and such invalidity orunenforceability shall in no way affect the validity or enforceability of such remaining provisions or the rights of any Party. To theextent permitted by Laws, the Parties hereby waive any provision of Laws that renders any provision of this Agreement invalid orunenforceable in any respect.
Section 12.5 Confidentiality
(a) Within five (5) years after the Closing Date, Seller shall keep confidential and shall not disclose to any person, corporation,firm or entity (excluding its legal and financial advisors) any information, documents and/or materials relating to the TargetCompany, except to the extent the disclosure of any such information is required by Law or a court, authorized by Buyer inwriting in advance (which Buyer shall respond in writing whether it authorizes such disclosure within five (5) Business Daysafter receiving the notice by Seller regarding such disclosure) or reasonably occurs in connection with disputes over the termsof this Agreement, or if the relevant information has become public information prior to the disclosure pursuant to thisAgreement or without Seller’s breach of this Section 12.5.
(b) Within five (5) years after the Closing Date, Buyer shall keep confidential and shall not disclose to any third party anyinformation relating to Seller’ prior practice of managing and operating the Target Company that was disclosed by Seller toBuyer in connection with this Equity Transfer, except to the extent disclosure of any such information (i) is required by Lawor a court and is authorized by Seller in writing in advance (which Seller shall respond in writing whether it authorizes suchdisclosure within five (5)
Business Days after receiving the notice by Buyer regarding such disclosure, failing which Buyer shall have the right tofreely disclose such information, and such authorization by Seller shall not be unreasonably rejected or delayed), (ii) islimited to a scope where the third party receiving such information has also signed a confidentiality agreement with Buyer tokeep such information within the same scope confidential, (iii) is disclosed in the ordinary course of business, or (iv) if therelevant information has become public information prior to the disclosure pursuant to this Agreement or without Buyer’sbreach of this Section 12.5.
Section 12.6 Language
This Agreement is written and executed in Chinese and English. Both language versions of this Agreement shall be consistent witheach other, and shall have the same legal effect. In the event of a conflict between the two language versions, the Parties’ trueintentions shall govern.
Section 12.7 Entire Agreement
This Agreement constitutes the entire agreement between the Parties with respect to the subject matter of this Agreement. In case ofany discrepancy between this Agreement and any previous oral and written agreements, contracts, understandings andcommunications of the Parties in respect of the subject matter of the Agreement, this Agreement shall prevail.
Section 12.8 Counterparts
This Agreement is executed and delivered in six (6) counterparts in the Chinese version and six (6) counterparts in the Englishversion by the Parties or by their authorized representatives, each of which when executed shall be deemed to be an original.
Section 12.9 Headings
Headings in this Agreement are for convenience only and shall not control or affect the meaning or construction of any of theprovisions of this Agreement.
Section 12.10 Force Majeure
Subject to the terms and conditions of this Agreement, no Party will be responsible to the other Party for the non-performance of orfor delay in performance occasioned by any cause that is unforeseeable and cannot be avoided or overcome (“ Force MajeureEvent ”), including, without limitation, fires, floods, droughts, lightning, typhoons, earthquakes and other natural disasters,shipwreck, war, civil or political commotion, riots, epidemics, acts, omissions or regulations (whether of general or individual scope)of different levels of Governmental Authorities, and strikes (other than strikes affecting only employees of the Target Company).However, the non-performing Party shall use diligence in attempting to remove any such cause and shall promptly notify the otherParty of the extent and probable duration of such cause. Should a Force Majeure Event last for one hundred and eighty (180) days ormore, the Parties shall decide through friendly consultations whether to continue the performance of, or to terminate, thisAgreement.
Section 12.11 Notice
Any notices, requests, claims, demands, instructions and other communications to be given hereunder to any Party shall be in writingand delivered in person, sent by certified mail, postage prepaid, return receipt requested, or by facsimile transmission when receivedtelephonic transmission answer back, or by electronic mail when sent to the receipient’s e-mail address, to the following addresses(or at such other address or number as is given in writing by one Party to the other pursuant hereto):
(i) If to Seller:
KNSN Pipe & Pile Co., Ltd.
To the Attention of: Jinhong LuAddress: No.1 Jin Xin Road, Jiang Jia Village, Lu Shan Street, Fuyang District, Hangzhou City, Zhejiang Province,China, 311407Email: [email protected]: +86 (571) 6316-8089With a copy to: Xiaofei Lu, No.1 Jin Xin Road, Jiang Jia Village, Lu Shan Street, Fuyang District, Hangzhou City,Zhejiang Province, China 311407
(ii) If to Buyer:
Hyster-Yale Acquisition Holding Ltd
To the Attention of: Ms. Suzanne Taylor (Senior Vice President, General Counsel and Secretary)Address: Hyster-Yale Materials Handling, Inc., 5875 Landerbrook Drive, Mayfield Heights, Ohio 44124Email: [email protected]: +1 (440) 449-9561With a copy to: Liming Yuan, Jones Day Shanghai, 4th Floor, 27 Zhongshan Dong Yi Road, Shanghai 200002, China
[SIGNATURE PAGE FOLLOWS]
[Signature Page of the ETA]
IN WITNESS WHEREOF , each of the Parties hereto has caused this Agreement to be executed on the date first set forth above.
KNSN PIPE & PILE CO., LTD.
By /s/ Jinhong LuName: Jinhong LuTitle: Legal Representative
HYSTER-YALE ACQUISITION HOLDING LTD
By /s/ Alfred RankinName: Alfred RankinTitle: Authorized Representative
Dated: December 6, 2017
Exhibit 21
SUBSIDIARIES OF HYSTER-YALE MATERIALS HANDLING, INC.
The following is a list of active subsidiaries as of the date of the filing with the Securities and Exchange Commission of the Annual Report on Form 10‑K to whichthis is an Exhibit. Except as noted, all of these subsidiaries are wholly owned, directly or indirectly.
Name Incorporation
Auramo OY FinlandAuramo ZA South Africa (40%)Bolzoni Auramo AB SwedenBolzoni Auramo B.V. Holland (51%)Bolzoni Auramo Canada Ltd. CanadaBolzoni Auramo Inc. South CarolinaBolzoni Auramo Polska SP Zoo Poland (60%)Bolzoni Auramo Pty Ltd. AustraliaBolzoni Auramo (Shanghai) Forklift Truck Attachment Co. Ltd. China (60%)Bolzoni Auramo SL Sociedad Unipersonal SpainBolzoni Auramo (Wuxi) Forklift Truck Attachment Co. Ltd. ChinaBolzoni Capital Holding B.V. NetherlandsBolzoni Capital UK, Limited United KingdomBolzoni Italia Srl ItalyBolzoni (Hebei) Forks ChinaBolzoni Holdings LLC DelawareBolzoni Holding Hong Kong Hong Kong (PRC)(80%)Bolzoni Holding SpA ItalyBolzoni Ltd. United KingdomBolzoni Portugal Lda. Portugal (31%)Bolzoni Sarl FranceBolzoni SpA ItalyG2A France (75%)Hiroshima Yale Co., Ltd. Japan (20%)HYG Financial Services, Inc. Delaware (20%)HYG Telematics Solutions Limited United KingdomHyster (H.K.) Limited Hong Kong (PRC)Hyster Overseas Capital Corporation, LLC DelawareHyster Singapore Pte Ltd SingaporeHyster-Yale Acquisition Holding Limited United KingdomHyster-Yale Australia Holding Pty Ltd. AustraliaHyster-Yale Asia-Pacific Pty, Ltd. AustraliaHyster-Yale Brasil Empilhadeiras Ltda. BrazilHyster-Yale Canada ULC CanadaHyster-Yale Deutschland GmbH GermanyHyster-Yale France S.A.R.L. FranceHyster-Yale Group, Inc. DelawareHyster-Yale Group Limited United KingdomHyster-Yale Holding B.V. NetherlandsHyster-Yale International B.V. NetherlandsHyster-Yale Italia SpA ItalyHyster-Yale Lift Trucks India Private Limited IndiaHyster-Yale Mauritius MauritiusHyster-Yale Mexico S.A. de C.V. MexicoHyster-Yale Nederland B.V. NetherlandsHyster-Yale UK Limited United KingdomHyster-Yale UK Pension Co. Limited United KingdomMeyer GmbH GermanyLLC Hans H. Meyer OOO Russia (80%)
Name Incorporation
NMHG Distribution Pty. Limited AustraliaNuvera Fuel Cells, LLC. DelawareOnoda Industry Co. Ltd. Japan (20%)Shanghai Hyster Forklift, Ltd. ChinaShanghai Hyster International Trading Co. Ltd. ChinaSNP Estate Corporation Philippines (50%)Suminac Philippines, Inc. Philippines (50%)Sumitomo NACCO Forklift Co., Ltd. Japan (50%)Sumitomo NACCO Forklift Sales Co., Ltd. Japan (50%)Sumitomo NACCO Forklift Vietnam Co., Ltd. Vietnam (50%)Tohoku Shinko Co., Ltd. Japan (47%)Tokai Shinko Co., Ltd. Japan (15%)Weil Corporation Philippines (50%)Yale Materials Handling UK Ltd. United Kingdom
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement on Form S-8 pertaining to the Hyster-Yale Materials Handling, Inc. Supplemental Long-Term Equity Incentive Plan of Hyster-Yale Materials Handling, Inc. for the registration of 100,000 shares of Class A common stock;
(2) Registration Statement on Form S-8 pertaining to the Hyster-Yale Materials Handling, Inc. Non-Employee Directors' Equity Compensation Plan ofHyster-Yale Materials Handling, Inc. for the registration of 100,000 shares of Class A common stock;
(3) Registration Statement on Form S-8 pertaining to the Hyster-Yale Materials Handling, Inc. Long-Term Equity Incentive Plan of Hyster-Yale MaterialsHandling, Inc. for the registration of 750,000 shares of Class A common stock;
of our reports dated February 27, 2018 , with respect to the consolidated financial statements and schedule of Hyster-Yale Materials Handling, Inc. andSubsidiaries and the effectiveness of internal control over financial reporting of Hyster-Yale Materials Handling, Inc. and Subsidiaries included in this AnnualReport (Form 10-K) for the year ended December 31, 2017 .
/s/ Ernst & Young LLPCleveland, Ohio February 27, 2018
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Hyster-Yale Materials Handling, Inc. hereby constitutes and appoints Kenneth C.Schilling and Suzanne S. Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for theundersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of Hyster-Yale Materials Handling, Inc., aDelaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2017, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with theSecurities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each andevery act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person,hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done byvirtue hereof.
/s/ J.C. Butler, Jr. February 6, 2018 John C. Butler, Jr. Date
Exhibit 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Hyster-Yale Materials Handling, Inc. hereby constitutes and appoints Kenneth C.Schilling and Suzanne S. Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for theundersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of Hyster-Yale Materials Handling, Inc., aDelaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2017, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with theSecurities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each andevery act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person,hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done byvirtue hereof.
/s/ Carolyn Corvi February 6, 2018 Carolyn Corvi Date
Exhibit 24.3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Hyster-Yale Materials Handling, Inc. hereby constitutes and appoints Kenneth C.Schilling and Suzanne S. Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for theundersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of Hyster-Yale Materials Handling, Inc., aDelaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2017, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with theSecurities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each andevery act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person,hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done byvirtue hereof.
/s/ John P. Jumper February 6, 2018 John P. Jumper Date
Exhibit 24.4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Hyster-Yale Materials Handling, Inc. hereby constitutes and appoints Kenneth C.Schilling and Suzanne S. Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for theundersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of Hyster-Yale Materials Handling, Inc., aDelaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2017, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with theSecurities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each andevery act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person,hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done byvirtue hereof.
/s/ Dennis W. LaBarre February 6, 2018 Dennis W. LaBarre Date
Exhibit 24.5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Hyster-Yale Materials Handling, Inc. hereby constitutes and appoints Kenneth C.Schilling and Suzanne S. Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for theundersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of Hyster-Yale Materials Handling, Inc., aDelaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2017, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with theSecurities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each andevery act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person,hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done byvirtue hereof.
/s/ H. Vincent Poor February 6, 2018 H. Vincent Poor Date
Exhibit 24.6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Hyster-Yale Materials Handling, Inc. hereby constitutes and appoints Kenneth C.Schilling and Suzanne S. Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for theundersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of Hyster-Yale Materials Handling, Inc., aDelaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2017, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with theSecurities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each andevery act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person,hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done byvirtue hereof.
/s/ Claiborne R. Rankin February 6, 2018 Claiborne R. Rankin Date
Exhibit 24.7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Hyster-Yale Materials Handling, Inc. hereby constitutes and appoints Kenneth C.Schilling and Suzanne S. Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for theundersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of Hyster-Yale Materials Handling, Inc., aDelaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2017, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with theSecurities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each andevery act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person,hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done byvirtue hereof.
/s/ John M. Stropki February 6, 2018 John M. Stropki Date
Exhibit 24.8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Hyster-Yale Materials Handling, Inc. hereby constitutes and appoints Kenneth C.Schilling and Suzanne S. Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for theundersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of Hyster-Yale Materials Handling, Inc., aDelaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2017, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with theSecurities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each andevery act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person,hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done byvirtue hereof.
/s/ Britton T. Taplin February 6, 2018 Britton T. Taplin Date
Exhibit 24.9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Hyster-Yale Materials Handling, Inc. hereby constitutes and appoints Kenneth C.Schilling and Suzanne S. Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for theundersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of Hyster-Yale Materials Handling, Inc., aDelaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2017, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with theSecurities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each andevery act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person,hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done byvirtue hereof.
/s/ Eugene Wong February 6, 2018 Eugene Wong Date
Exhibit 31(i)(1)
Certifications
I, Alfred M. Rankin, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Hyster-Yale Materials Handling, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered bythis report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15-d-15(f)), for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting.
Date: February 27, 2018 /s/ Alfred M. Rankin, Jr. Alfred M. Rankin, Jr.
Chairman, President and Chief Executive Officer(principal executive officer)
Exhibit 31(i)(2)
Certifications
I, Kenneth C. Schilling, certify that:
1. I have reviewed this annual report on Form 10-K of Hyster-Yale Materials Handling, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered bythis report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15-d-15(f)), for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting.
Date: February 27, 2018 /s/ Kenneth C. Schilling Kenneth C. Schilling
Senior Vice President and Chief Financial Officer(principal financial and accounting officer)
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF2002
In connection with the Annual Report of Hyster-Yale Materials Handling, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2017 , as filedwith the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Companyas of the dates and for the periods expressed in the Report.
Date: February 27, 2018 /s/ Alfred M. Rankin, Jr. Alfred M. Rankin, Jr.
Chairman, President and Chief Executive Officer(principal executive officer)
Date: February 27, 2018 /s/ Kenneth C. Schilling Kenneth C. Schilling
Senior Vice President and Chief Financial Officer(principal financial and accounting officer)