HYSTER-YALE, INC. (HY) FY 2023 MD&A

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

HYSTER-YALE MATERIALS HANDLING, INC. AND SUBSIDIARIES

(Tabular Amounts in Millions, Except Per Share, Percentage Data and as Otherwise Noted)

OVERVIEW

Hyster-Yale Materials Handling, Inc. ("Hyster-Yale" or the "Company") and its subsidiaries, including its operating company Hyster-Yale Group, Inc. ("HYG"), is a globally integrated company offering a full line of high-quality, application-tailored lift trucks and solutions aimed at meeting the specific materials handling needs of its customers. The Company's solutions include attachments and hydrogen fuel cell power products, telematics, automation and fleet management services, as well as a variety of other power options for its lift trucks. The Company, through HYG, designs, engineers, manufactures, sells and services a comprehensive line of lift trucks, attachments and aftermarket parts marketed globally, primarily under the Hyster® and Yale® brand names, mainly to independent Hyster® and Yale® retail dealerships. The materials handling business historically has been cyclical because the order rate for lift trucks fluctuates depending on the economic activity level in the various industries and countries its customers serve. The Company owns a 90% majority interest in Hyster-Yale Maximal Forklift (Zhejiang) Co., Ltd. ("Hyster-Yale Maximal"), a Chinese manufacturer of low-intensity and standard lift trucks and specialized material handling equipment. Hyster-Yale Maximal also designs and produces specialized products in the port equipment and rough terrain forklift markets. Lift trucks and component parts are manufactured in the United States, Northern Ireland, China, Mexico, the Netherlands, Brazil, the Philippines, Italy, Japan and Vietnam.

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

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

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

See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2022 Annual Report on Form 10-K for discussion of financial condition and results of operations for 2022 compared with 2021.

Critical Accounting Policies and Estimates

The discussion and analysis of financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities, if any. On an ongoing basis, the Company evaluates its estimates based on historical experience, actuarial valuations and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.

The Company believes the following are critical accounting policies. Certain of these are critical accounting estimates as they require significant judgments and estimates used in the preparation of the consolidated financial statements.

Deferred Income Taxes: Deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences that exist between the financial statement carrying value of assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards on a taxing jurisdiction basis. The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which it expects the temporary differences to be recovered or paid. U.S. generally accepted accounting principles for income taxes requires a reduction of the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not (defined as a likelihood of more than 50%) such assets will not be realized. The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the Company's financial statements or tax returns and future profitability. The Company's accounting for deferred tax consequences represents its best estimate of those future events. Changes in the Company's estimates, due to unanticipated events or otherwise, could have a material effect on its

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financial condition and results of operations. The Company continually evaluates its deferred tax assets to determine if a valuation allowance is required or no longer needed. At December 31, 2023, the Company had gross deferred tax assets of $145.9 million which were reduced by valuation allowances of $126.6 million and gross deferred tax liabilities of $29.0 million.

Goodwill: Goodwill is tested for impairment annually as of May 1, and is tested for impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. The Company completed the annual goodwill impairment testing as of May 1, 2023 at the reporting unit level for the related goodwill. The Company uses either a qualitative or quantitative analysis to determine whether fair value exceeds carrying value. An estimate of the fair value of the reporting unit is determined through a combination of comparable market values for similar businesses and discounted cash flows. These estimates can change significantly based on such factors as the reporting unit's financial performance, economic conditions, interest rates, growth rates, pricing, changes in business strategies and competition. Based on the annual testing, the fair value of each reporting unit was in excess of its carrying value and no impairment existed. As of December 31, 2023, Bolzoni had $50.6 million of goodwill. Based on the most recent interim impairment test, Bolzoni's fair value of equity exceeded the carrying value by approximately $50 million or 30%.

Factors which could result in future impairment charges include, but are not limited to, changes in worldwide economic conditions, changes in competitive conditions and customer preferences. These risk factors are discussed in Item 1A, "Risk Factors," of this Annual Report on Form 10-K. In addition, changes in the weighted average cost of capital could also impact impairment testing results. The Company will continue to monitor its reporting units and asset groups for any indicators of impairment.

Product liabilities: The Company is generally self-insured for product liability claims, although catastrophic insurance coverage is retained for potentially significant individual claims, and the Company also has insurance for certain historic claims. The Company provides for the estimated cost of personal and property damage relating to its products based on a review of historical experience and consideration of any known trends. Reserves are recorded for estimates of the costs for known claims and estimates of the costs of incidents that have occurred but for which a claim has not yet been reported. While the Company engages in extensive product quality reviews and customer education programs, the product liability provision is affected by the number and magnitude of claims of alleged product-related injury and property damage and the cost to defend those claims. In addition, the estimates regarding the magnitude of claims are affected by changes in assumptions regarding medical costs, legal defense costs, inflation rates and trends in damages awarded by juries. Changes in the assumptions regarding any one of these factors could result in a change in the estimate of the magnitude of claims. A one percent increase in the estimate of the number of claims or the magnitude of claims would increase the product liability reserve and reduce operating profit by approximately $0.1 million to $0.8 million. Although there can be no assurances, the Company is not aware of any circumstances that would be reasonably likely to materially change the estimates in the future.

Product warranties: The Company provides for the estimated cost of product warranties at the time revenues are recognized. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of component suppliers, the warranty obligation is affected by product failure rates, labor costs and replacement component costs incurred in correcting a product failure. If actual product failure rates, labor costs or replacement component costs differ from the Company's estimates, which are based on historical failure rates and consideration of known trends, revisions to the estimate of the cost to correct product failures would be required. If the estimate of the cost to correct product failures were to increase by one percent over 2023 levels, the product warranties reserves would increase and reduce operating profit by approximately $3.2 million. The Company's past results of operations have not been materially affected by a change in the estimate of product warranties and although there can be no assurances, the Company is not aware of any circumstances that would be reasonably likely to materially change the estimates in the future.

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CONSOLIDATED FINANCIAL REVIEW

The following table identifies the components of change for 2023 compared with 2022 by segment:

FINANCIAL REVIEW

The segment and geographic results of operations for the Company were as follows for the year ended December 31:

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Following is the detail of the Company's unit shipments, bookings and backlog of unfilled orders placed with its manufacturing and assembly operations for new lift trucks, reflected in thousands of units. As of December 31, 2023, substantially all of the Company's backlog is expected to be sold within the next twelve months.

The following is the detail of the approximate sales value of the Company's lift truck unit bookings and backlog, reflected in millions of dollars. The dollar value of bookings and backlog is calculated using the current unit bookings and backlog and the forecasted average sales price per unit.

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2023 Compared with 2022

The following table identifies the components of change in revenues for 2023 compared with 2022:

Revenues increased 16.1% to $4,118.3 million in 2023 from $3,548.3 million in 2022 mainly from improvements at the Lift Truck business. The increase at Lift Truck was primarily due to improved pricing, higher unit and parts volume in the Americas and a shift in sales to higher-priced lift trucks in the Americas and EMEA. The improvement in Lift Truck revenue was partially offset by a decline in unit shipments in JAPIC and EMEA.

Bolzoni revenues increased in 2023 compared with 2022 mainly from higher volume and price increases, partially offset by an increase in the sale of lower-priced products.

The following table identifies the components of change in operating profit (loss) for 2023 compared with 2022:

The Company recognized an operating profit of $208.7 million in 2023 compared with an operating loss of $39.1 million in 2022. The increase in Lift Truck operating profit was primarily due to improved gross profit from higher pricing of $270.6 million, mainly in the Americas and EMEA, a shift in sales to higher margin lift trucks, lower material costs net of manufacturing inefficiencies, primarily in the Americas, and higher unit and parts sales compared with 2022. These items were partially offset by higher selling, general and administrative expenses primarily due to increased employee-related costs, including incentive compensation, as well as higher marketing, product liability and product development costs.

Operating profit in the Americas increased primarily due to improved gross profit from higher pricing of $163.8 million, lower material costs net of manufacturing inefficiencies, a shift in sales to higher margin lift trucks and increased unit and parts sales. These improvements were partially offset by higher selling, general and administrative expenses, primarily related to higher employee costs, including incentive compensation, higher marketing and product development to support the Company's strategic initiatives and higher product liability costs.

EMEA's operating profit improved mainly due to improved gross profit from improved pricing of $102.8 million, partially offset by lower volumes and manufacturing inefficiencies.

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JAPIC's operating loss increased to $15.6 million in 2023 from $10.6 million in 2022, primarily due to higher selling, general and administrative expenses, partially offset by higher gross profit from a shift in mix to higher-margin products and material cost deflation.

Bolzoni's operating profit increased to $15.3 million in 2023 compared with $6.2 million in 2022, primarily due to higher gross profit from improved pricing, lower manufacturing costs and higher volumes. The increase was partially offset by a shift to lower margin products and higher selling, general and administrative expenses, mainly related to higher employee costs, including incentive compensation.

The Company recognized net income attributable to stockholders of $125.9 million in 2023 compared with a net loss attributable to stockholders of $74.1 million in 2022. The improvement was primarily the result of the factors affecting operating profit (loss), partially offset by higher income taxes and interest expense. 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:

The change in net cash provided by operating activities of $110.1 million in 2023 compared with 2022 was primarily a result of the improved net income (loss) partially offset by changes in working capital items. The changes in working capital were mainly due to a decrease in accounts payable in 2023 compared to 2022 and lower customer deposits for down payments on orders.

The change in net cash used for investing activities during 2023 compared with 2022 is mainly due to higher capital expenditures in 2023, partially offset by the purchase of Bolzoni's noncontrolling interest in 2023 compared with the first installment purchase of the noncontrolling interest of Hyster-Yale Maximal in 2022.

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The change in net cash used for financing activities was primarily due to debt repayments during 2023 compared with additional borrowings in 2022.

Financing Activities

The Company has a $320.8 million secured, floating-rate revolving credit facility (the "Facility") that expires in June 2026 and a $225.0 million term loan (the "Term Loan"), which matures in May 2028. The Facility was amended in the second quarter of 2023 for the purpose of, among other items, (i) establishing a new tranche of revolving loans with aggregate commitments of $25.0 million under the Facility and (ii) changing the benchmark interest rate for U.S. dollar-denominated borrowings under the Facility from LIBOR to Term SOFR, each as defined in the Facility.

The Term Loan was also amended in the second quarter of 2023 for the purpose of changing the benchmark interest rate for borrowings under the Term Loan from LIBOR to Term SOFR, each as defined in the Term Loan. See Note 13 to the consolidated financial statements in this Annual Report on Form 10-K for further discussion.

The Facility can be increased up to $400.0 million over the term of the Facility in minimum increments of $10.0 million, subject to approval by the lenders. The obligations under the Facility are generally secured by a first priority lien on working capital assets of the borrowers and guarantors in the Facility, which includes but is not limited to cash and cash equivalents, accounts receivable and inventory, and a second priority lien on the present and future shares of capital stock, fixtures and general intangibles consisting of intellectual property. The approximate book value of assets held as collateral under the Facility was $1.2 billion as of December 31, 2023.

The Facility includes restrictive covenants, which, among other things, limit additional borrowings and investments of the Company subject to certain thresholds, as provided in the Facility. The Facility limits the payment of dividends and other restricted payments the Company may make unless certain total excess availability and/or fixed charge coverage ratio thresholds, each as set forth in the Facility, are satisfied. The Facility also requires the Company to achieve a minimum fixed charge coverage ratio when total excess availability is less than the greater of 10% of the total borrowing base, as defined in the Facility, and $20.0 million. At December 31, 2023, the Company was in compliance with the covenants in the Facility.

The $25.0 million tranche will terminate on May 1, 2024 unless otherwise terminated prior to such date by the Company in accordance with the terms of the Facility. Commencing December 1, 2023, the $25.0 million tranche began to amortize on a monthly basis in the amount of $4.2 million per month. At December 31, 2023, $20.8 million was outstanding.

Key terms of the Facility as of December 31, 2023 were as follows:

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The Term Loan requires quarterly principal payments on the last day of each March, June, September and December, which commenced September 30, 2021, in an amount equal to $562,500 and the final principal repayment is due in May 2028. The Company may also be required to make mandatory prepayments, in certain circumstances, as provided in the Term Loan.

The obligations under the Term Loan are generally secured by a first priority lien on the present and future shares of capital stock, U.S. material real property, fixtures and general intangibles consisting of intellectual property and a second priority lien on U.S. working capital assets of the borrowers and guarantors of the Term Loan, which includes, but is not limited to cash and cash equivalents, accounts receivable and inventory. The approximate book value of assets held as collateral under the Term Loan was $780 million as of December 31, 2023.

In addition, the Term Loan includes restrictive covenants, which, among other things, limit additional borrowings and investments of the Company subject to certain thresholds, as provided in the Term Loan. The Term Loan limits the payment of dividends and other restricted payments the Company may make in any fiscal year, unless the consolidated total net leverage ratio, as defined in the Term Loan, does not exceed 2.50 to 1.00 at the time of the payment. At December 31, 2023, the Company was in compliance with the covenants in the Term Loan.

Key terms of the Term Loan as of December 31, 2023 were as follows:

The Company incurred fees of $0.8 million and $7.6 million in 2023 and 2021, respectively. These fees related to amending the Facility and the Term Loan. These fees were deferred and are being amortized as interest expense over the term of the applicable debt agreements. No fees were incurred in 2022. Fees related to the Term Loan are presented as a direct deduction of the corresponding debt.

The Company had other debt outstanding, excluding finance leases, of approximately $172.5 million at December 31, 2023. In addition to the excess availability under the Facility of $236.0 million, the Company had remaining availability of $33.7 million related to other non-U.S. revolving credit agreements.

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The Company believes funds available from cash on hand, the Facility, other available lines of credit and operating cash flows will provide sufficient liquidity to meet its operating needs and commitments during the next twelve months and until the expiration of the Facility in June 2026.

Contractual Obligations, Contingent Liabilities and Commitments

Following is a table summarizing the Company's material cash requirements from contractual obligations as of December 31, 2023:

The principal sources of financing for these material contractual obligations are expected to be internally generated funds and bank financing.

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 purchase and other obligations are primarily for accounts payable, open purchase orders and accrued payroll and incentive compensation.

In addition, the Company has recourse and repurchase obligations with a maximum undiscounted potential liability of $162.4 million at December 31, 2023. Recourse and repurchase obligations primarily represent contingent liabilities assumed by the Company to support financing agreements made between the Company's customers and third-party finance companies for the customer’s purchase of lift trucks from the Company. For these transactions, the Company or a third-party finance company retains a perfected security interest in the lift truck, such that the Company would take possession of the lift truck in the event it would become liable under the terms of the recourse and repurchase obligations. Generally, these commitments are due upon demand in the event of default by the customer. The security interest is normally expected to equal or exceed the amount of the commitment. To the extent the Company would be required to provide funding as a result of these commitments, the Company believes the value of its perfected security interest and amounts available under existing credit facilities are adequate to meet these commitments in the foreseeable future.

The amount of the recourse or repurchase obligations changes over time as obligations under existing arrangements expire and new obligations arise in the ordinary course of business. Losses anticipated under the terms of the recourse or repurchase obligations were not significant at December 31, 2023 and reserves have been provided for such losses in the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. See also “Related-Party Transactions” below.

Capital Expenditures

The following table summarizes actual and planned capital expenditures:

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Planned expenditures in 2024 are primarily for improvements at manufacturing locations and manufacturing equipment, product development and improvements to information technology infrastructure. The primary sources of financing for these capital expenditures are expected to be internally generated funds and bank financing.

Capital Structure

RELATED-PARTY TRANSACTIONS

See Note 18 to the consolidated financial statements in this Annual Report on Form 10-K for further discussion of related-party transactions.

PERSPECTIVE AND OUTLOOK

Market Commentary

Generally, the 2023 global economy performed better than anticipated. The Company's core lift truck market remains strong and above pre-pandemic levels in most regions. Nonetheless, some external market factors, including ongoing geopolitical instability, most recently evidenced by the tensions in the Red Sea, continue to create a significant amount of uncertainty within the global economic outlook. Due to this and abnormally high industry volumes from 2020 to 2022, global market activity declined across 2023, particularly in EMEA.

The latest publicly available lift truck market data indicates that new unit, third-quarter 2023 booking activity decreased globally and in all major geographies except China and India compared with strong 2022 levels. Internal company estimates suggest that fourth-quarter 2023 global lift truck market bookings decreased compared with the prior year. Its estimated that the rate of decline slowed in EMEA and accelerated somewhat in the Americas.

In 2024, global market bookings are expected to be generally comparable to 2023 levels. An anticipated first-half decline is expected to be offset by a second-half increase. For both full-years 2023 and 2024, market unit volumes are projected to remain strong.

Consolidated Strategic Perspective

The Company's significantly improved 2023 results are due to the global team's ongoing execution of strategic initiatives and actions to offset external headwinds and improve the business' resiliency over time. These actions include key projects and process improvements to help the Company achieve long-term growth rates above the material handling market's expected growth rates. The Company's mature Lift Truck and Bolzoni businesses are the foundation for growth, while the Company believes the Nuvera's substantial growth prospects should be additive in future years. The Company is focused on transforming the way the world moves materials from Port to Home. The Company plans to do this through two customer promises. First, by providing optimized product solutions and second, by providing exceptional customer care. The Company believes these actions will contribute to an increased and sustainable competitive advantage over time.

Operational Perspectives - Lift Truck Business

Given the Company's extended backlog position, it continues to prioritize booking orders with strong margins. This focus combined with declining market demand, particularly in the Americas, resulted in an 8% decrease in fourth-quarter 2023 lift truck bookings compared with third-quarter 2023 and a 20% decline from strong prior-year levels.

Looking forward, the Company expects to be price competitive with the market, but will work to maintain targeted bookings margins even as backlog levels are reduced. Overall, the Company expects 2024 bookings to increase compared to 2023. This improvement is primarily due to anticipated market share gains, especially in warehouse products, within an overall flat global lift truck market. These expected increases are primarily the result of the Company's strategic initiatives, particularly those focused on emerging technology solutions for warehouse-related markets. These technology solutions had strong 2023 growth rates, and the Company expects to build on that momentum in 2024. Planned production rate increases combined with

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anticipated market decreases in the first half of 2024 should help the Company reduce its extended lead times and backlog closer to pre-pandemic levels over 2024. However, given current expectations, the Company believes lead times and backlog levels will likely remain above optimal levels on certain product lines for an extended period. Specific lines, such as warehouse products, are expected to return to more normal lead time and backlog levels in 2024.

The Company's extended backlog, valued at $3.3 billion, represents almost ten months of revenue and should serve as a cushion for the business if bookings decline more than anticipated in 2024. Overall, customer cancellations, which can impact backlog levels, trended up modestly in 2023 from prior year rates. The Company's cancellation rate remains substantially below the industry average.

Full-year 2024 production and shipment rates are expected to increase compared with 2023 as production launch issues and lingering component and labor constraints dissipate. The Company's focus remains on maintaining a full production pipeline across its facilities within this moderated market demand environment.

The trend of higher average unit backlog prices and margins continued in the fourth quarter. This trend was largely due to the Company's ongoing focus on booking orders at strong margins and benefits from prior-year price increases to offset inflation. Fourth-quarter 2023 average booking prices decreased compared with both the third-quarter 2023 and the prior year largely due to the shift toward lower-priced warehouse products with shorter average lead times.

While material costs decreased modestly in 2023, forward economic indicators suggest stabilizing material costs and moderately higher labor costs in 2024. Elevated freight costs tied to geopolitical events are expected throughout 2024, particularly in the first half of the year. In this context, the Company expects to maintain its strong price-to-cost ratio in the first half of 2024 as higher-priced backlog units are shipped. This, combined with an anticipated increase in unit volumes, is expected to lead to higher gross margins and an improved operating profit in the first half of the year compared with 2023.

The expiration of tariff exemptions in late May 2024, shipment of trucks ordered in 2024's more competitive pricing environment and the mix effect of increased warehouse product shipments are likely to temper unit margins in the second half of the year. For the full-year, gross profit margins should be comparable to 2023 levels. The Company is working to reduce the earnings impact from externally driven factors through increased manufacturing productivity and expense control. The Company will continue to monitor labor and material costs closely, as well as the impacts from tariffs and competition, and will adjust forward pricing accordingly.

Overall, higher production and shipment rates along with stable gross profit margins are expected to generate increased Lift Truck revenues and operating profit in 2024 compared to the prior year.

Strategic Perspectives - Lift Truck

From a broad perspective, the Lift Truck business has three core strategies that are expected to transform the Company's competitiveness, market position and economic performance over time. The first core strategy is to provide products that improve customer productivity at the lowest cost of ownership. The Lift Truck business' capabilities in this area are expected to be enhanced by bringing to market a wide variety of vehicle innovations, including new modular and scalable product families, truck electrification projects and technology advancements in operator assist systems (OAS), power options and vehicle automation.

The Company continues to make progress on its high priority projects. The Company's heart-of-the-line modular, scalable 2- to 3.5-ton internal combustion engine lift trucks have been launched in the EMEA and Americas markets. The production ramp-up continues to occur gradually given the current extended backlog. However, bookings and shipments accelerated in 2023. A first-quarter 2024 launch of the full 2-to 3-ton internal combustion product line, which includes value, standard and premium truck configurations, is expected for the JAPIC market. Similar enhancements to the 2- to 3.5-ton electric truck platforms are also expected over 2024 and 2025. The modular, scalable product platform is expected to enhance multiple areas of the business, including reducing supply chain costs, improving working capital levels and helping optimize the Company's manufacturing footprint, while providing customers with a more customizable product that better meets their needs.

Other key projects include electrifying trucks used for applications now dominated by internal combustion engine trucks that capitalize on advancements in electric powertrain options. The Company currently has its first electrified fuel cell Container Handler operating at the Port of Los Angeles, and its first electrified fuel cell Reach Stacker operating at the Port of Valencia, Spain. Hyster-Yale anticipates delivering a new electrified fuel cell Terminal Tractor and an electrified fuel cell Empty Container Handler to a customer in Hamburg, Germany in 2024.

The Company is exploring options for additional electrification projects within the European Union and the United States. The Company also has key projects focused on applying its technology advancements to additional OAS and automated product options. Notably, during third-quarter 2023, the Company entered into an agreement with a technology-service provider to co-develop further robotics software technology for automated lift truck solutions.

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The Lift Truck business also has a key project focused on expanding global sourcing options of container handlers. The Company expects its Hyster® RS45 ReachStackers, as well as Empty Container Handlers, to be sourced from production locations in both Nijmegen, the Netherlands, and Fuyang, China during 2024. This dual-source supply chain will help the Company better meet the needs of the global market, enabling customers to benefit from time efficient delivery for economically viable trucks.

The second core strategy is be the leader in the delivery of industry- and customer-focused solutions by transforming the Company's sales approach to ensure it meets a wide variety of customer needs across a broad set of end markets. To meet diversified customer product needs, the Company is transforming its sales processes by using an industry-focused approach. The Company believes that understanding the customers’ applications is best done by segmenting the market into two broad umbrella categories: industrial and warehousing applications. The Company’s Hyster® brand will increasingly focus on industrial applications, while the Yale® brand will increasingly focus on warehouse applications. This focus separation will reinforce a natural differentiation between the two brands that already exists in the marketplace.

The third core strategy is to be the leader in independent distribution by focusing on effectively coordinating dealer and major account coverage, enhancing dealer excellence and ensuring outstanding dealer ownership globally. The Company is committed to helping its excellent dealer group be the leaders in their territories.

Operational and Strategic Perspectives - Bolzoni

Bolzoni anticipates a modest increase in 2024 revenues compared with 2023 as legacy products begin to be phased out and attachment volumes increase. Operating profit is expected to increase year-over-year as higher product margins and anticipated manufacturing efficiency improvements are projected to more than offset higher material and operating costs.

Bolzoni's core strategy is to be the leader in the attachments business. In this context, Bolzoni continues to concentrate on driving its "One Company - 3 Brands" approach globally, increasing its Americas business and focusing on strengthening its ability to serve key attachment industries and customers in global markets. As part of this approach, Bolzoni also intends to increase its sales, marketing and product capabilities especially in North America to support its industry-specific sales strategy.

Operational and Strategic Perspectives - Nuvera

Nuvera's core strategy is to be a leader in the heavy-duty fuel cell market. Nuvera continues to focus on placing 45kW and 60kW fuel cell production engines for demonstration in a limited number of niche, heavy-duty vehicle applications with expected significant fuel cell adoption potential where batteries alone cannot meet the market’s need. As a result, these applications are expected to have nearer-term fuel cell adoption potential. Nuvera has announced several projects with various third parties to test Nuvera® engines in targeted applications, including the Port of Los Angeles and the Port of Valencia, and most recently with Helinor Energy for zero-emission energy solutions for maritime applications. Nuvera expects to have additional products being tested in bus applications in China and India and in a German port by mid-2024. Nuvera is also developing a new, larger 125kW fuel cell engine for heavier-duty applications, which is projected to be available in 2025, and is working with customers to launch modular fuel cells for stationary and mobile generator applications.

Nuvera is focused on increasing customer product demonstrations and customer bookings in 2024. Nuvera is also expanding its presence in Europe and China. Orders from current customers have been booked and are expected to result in higher sales in 2024 compared with 2023. Nuvera expects these higher sales to be offset by increased development costs, leading to comparable year-over-year operating results. The increased engine demonstration volumes should significantly enhance the foundation for future fuel cell engine technology adoption and improved financial returns in future years.

Consolidated Outlook

At the consolidated level, the Company expects 2024 operating profit to increase while net income is expected to be comparable to 2023. The latter is due to higher projected 2024 income tax expense driven by an elevated income tax rate. This results from full utilization of U.S. net operating losses in 2023 combined with ongoing capitalization of research and development costs for tax purposes in 2024. The Company anticipates continued strong product margins from shipments of fixed-price backlog units to drive year-over-year profit growth in the first half of the year. However, the expiration of tariff exemptions and shipments of orders placed in 2024's more competitive pricing environment will likely temper second half results. As an offset to any competitive pricing adjustments, the Company will continue to focus on effectively managing its ongoing component and labor costs and production levels. The Company made solid progress toward its 7% operating profit margin and greater than 20% return on total capital employed goals at both the Lift Truck and Bolzoni businesses in 2023 and will work to make continued progress in 2024 toward achieving these goals.

The Company is committed to continuing to reduce its leverage and enhance its cash flows through ongoing working capital reductions and continued discipline over operating expenses. Capital expenditures were $35.4 million in 2023 and are expected to be $87 million in 2024. This full-year increase over restrained 2023 levels includes a return to investing for business growth and network efficiency. While the Company expects to make these substantial additional investments in the business, maintaining liquidity also continues to be a priority. Working capital control continues to be an area of intense focus for the

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Company. Inventory levels remain elevated and above pre-pandemic levels but are slowly declining from their peak in mid-2023. Efforts to maximize the use of on-hand inventory are expected to help significantly reduce excess inventory levels in 2024 despite intermittent supply chain and some periodic labor constraints. As a result of these actions, the Company expects a significant increase in cash flow from operations in 2024 compared with 2023.

RECENTLY ISSUED ACCOUNTING STANDARDS

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

EFFECTS OF FOREIGN CURRENCY

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

FORWARD-LOOKING STATEMENTS

The statements contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere throughout this Annual Report on Form 10-K that are not historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are made subject to certain risks and uncertainties, which could cause actual results to differ materially from those presented. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Among the factors that could cause plans, actions and results to differ materially from current expectations are, without limitation: (1) delays in delivery and other supply chain disruptions, or increases in costs as a result of inflation or otherwise, including materials, critical components and transportation costs and shortages, the imposition of tariffs, or the renewal of tariff exclusions, on raw materials or sourced products, and labor, or changes in or unavailability of quality suppliers or transporters, including the impacts of the foregoing risks on the Company's liquidity, (2) delays in manufacturing and delivery schedules, (3) customer acceptance of pricing, (4) the ability of the Company and its dealers, suppliers and end-users to access credit in the current economic environment, or obtain financing at reasonable rates, or at all, as a result of interest rate volatility and current economic and market conditions, including inflation, (5) reduction in demand for lift trucks, attachments and related aftermarket parts and service on a global basis, including any cyclical reduction in demand in the lift truck industry, (6) unfavorable effects of geopolitical and legislative developments on global operations, including without limitation the entry into new trade agreements and the imposition of tariffs and/or economic sanctions, including the Uyghur Forced Labor Prevention Act (the “UFLPA”) which could impact the Company's imports from China, as well as armed conflicts, including the Russia/Ukraine conflict, the Israel and Gaza conflict and/or the conflict in the Red Sea, and their regional effects, (7) exchange rate fluctuations, interest rate volatility and monetary policies and other changes in the regulatory climate in the countries in which the Company operates and/or sells products, (8) the effectiveness of the cost reduction programs implemented globally, including the successful implementation of procurement and sourcing initiatives, (9) the successful commercialization of Nuvera's technology, (10) the political and economic uncertainties in the countries where the Company does business, as well as the effects of any withdrawals from such countries, (11) bankruptcy of or loss of major dealers, retail customers or suppliers, (12) customer acceptance of, changes in the costs of, or delays in the development of new products, (13) introduction of new products by, more favorable product pricing offered by or shorter lead times available through competitors, (14) product liability or other litigation, warranty claims or returns of products, (15) changes mandated by federal, state and other regulation, including tax, health, safety or environmental legislation, (16) the ability to attract, retain, and replace workforce and administrative employees, (17) disruptions resulting from natural disasters, public health crises, political crises or other catastrophic events, and (18) the ability to protect the Company’s information technology infrastructure against service interruptions, data corruption, cyber-based attacks or network breaches.