HYSTER-YALE, INC. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Per Share and Percentage Data) Hyster-Yale Materials Handling, Inc. ("Hyster-Yale" or the "Company") and its subsidiaries, including its operating company Hyster-Yale Group, Inc. ("HYG"), is a leading, globally integrated, full-line lift truck manufacturer. The Company offers a broad array of solutions aimed at meeting the specific materials handling needs of its customers, including attachments and hydrogen fuel cell power products, telematics, automation and fleet management services, as well as a variety of other power options for its lift trucks. The Company, through HYG, designs, engineers, manufactures, sells and services a comprehensive line of lift trucks, attachments and aftermarket parts marketed globally, primarily under the Hyster ® and Yale ® brand names, mainly to independent Hyster ® and Yale ® retail dealerships. The materials handling business historically has been cyclical because the rate of orders for lift trucks fluctuates depending on the general level of economic activity in the various industries and countries its customers serve. Lift trucks and component parts are manufactured in the United States, China, Northern Ireland, Mexico, the Netherlands, 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. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Please refer to the discussion of Critical Accounting Policies and Estimates as disclosed on pages 15 through 17 in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. Critical Accounting Policies and Estimates have not materially changed since December 31, 2022. FINANCIAL REVIEW The results of operations for the Company were as follows: THREE MONTHS ENDED Favorable / (Unfavorable) SIX MONTHS ENDED Favorable / (Unfavorable) JUNE 30 JUNE 30 2023 2022 % Change 2023 2022 % Change Lift truck unit shipments (in thousands) Americas 18.3 13.9 31.7 % 34.4 28.5 20.7 % EMEA 7.0 7.8 (10.3) % 13.8 14.3 (3.5) % JAPIC 2.4 3.6 (33.3) % 4.7 6.4 (26.6) % 27.7 25.3 9.5 % 52.9 49.2 7.5 % Revenues Americas $ 788.5 $ 596.6 32.2 % $ 1,474.4 $ 1,154.3 27.7 % EMEA 200.6 184.8 8.5 % 415.5 354.5 17.2 % JAPIC 49.6 64.9 (23.6) % 97.5 116.6 (16.4) % Lift truck business 1,038.7 846.3 22.7 % 1,987.4 1,625.4 22.3 % Bolzoni 96.6 86.4 11.8 % 195.2 181.5 7.5 % Nuvera 1.0 0.3 233.3 % 2.6 0.9 188.9 % Eliminations (45.7) (37.6) 21.5 % (95.3) (84.8) 12.4 % $ 1,090.6 $ 895.4 21.8 % $ 2,089.9 $ 1,723.0 21.3 % 21 Table of Contents THREE MONTHS ENDED Favorable / (Unfavorable) SIX MONTHS ENDED Favorable / (Unfavorable) JUNE 30 JUNE 30 2023 2022 % Change 2023 2022 % Change Gross profit Americas $ 143.4 $ 66.1 116.9 % $ 264.6 $ 133.1 98.8 % EMEA 27.1 11.3 139.8 % 54.0 25.7 110.1 % JAPIC 6.5 3.9 66.7 % 14.0 8.4 66.7 % Lift truck business 177.0 81.3 117.7 % 332.6 167.2 98.9 % Bolzoni 22.6 18.9 19.6 % 43.3 37.7 14.9 % Nuvera (1.8) (1.6) (12.5) % (3.9) (3.5) (11.4) % Eliminations 0.1 0.5 n.m. 0.3 (1.1) n.m. $ 197.9 $ 99.1 99.7 % $ 372.3 $ 200.3 85.9 % Selling, general and administrative expenses Americas $ 78.2 $ 63.0 (24.1) % $ 151.9 $ 125.6 (20.9) % EMEA 26.0 22.1 (17.6) % 50.3 47.9 (5.0) % JAPIC 10.3 7.9 (30.4) % 20.1 16.1 (24.8) % Lift truck business 114.5 93.0 (23.1) % 222.3 189.6 (17.2) % Bolzoni 17.2 15.5 (11.0) % 33.5 32.2 (4.0) % Nuvera 7.4 6.3 (17.5) % 15.1 12.5 (20.8) % $ 139.1 $ 114.8 (21.2) % $ 270.9 $ 234.3 (15.6) % Operating profit (loss) Americas $ 65.2 $ 3.1 n.m. $ 112.7 $ 7.5 n.m. EMEA 1.1 (10.8) n.m. 3.7 (22.2) n.m. JAPIC (3.8) (4.0) 5.0 % (6.1) (7.7) 20.8 % Lift truck business 62.5 (11.7) n.m. 110.3 (22.4) n.m. Bolzoni 5.4 3.4 58.8 % 9.8 5.5 78.2 % Nuvera (9.2) (7.9) (16.5) % (19.0) (16.0) (18.8) % Eliminations 0.1 0.5 n.m. 0.3 (1.1) n.m. $ 58.8 $ (15.7) n.m. $ 101.4 $ (34.0) n.m. Interest expense $ 8.4 $ 6.1 (37.7) % $ 18.6 $ 11.2 (66.1) % Other (income) expense $ (0.4) $ — n.m. $ (3.9) $ (2.1) 85.7 % Net income (loss) attributable to stockholders $ 38.3 $ (19.4) n.m. $ 64.9 $ (44.4) n.m. Diluted earnings (loss) per share $ 2.21 $ (1.15) n.m. $ 3.76 $ (2.63) n.m. Reported income tax rate 23.6 % 14.2 % 23.9 % 0.5 % 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 new lift trucks, reflected in thousands of units. "Other adjustments" in the first six months of 2022 below represents suspended orders for which the Company has no defined plans to fulfill. As of June 30, 2023, unit backlog excludes 2,500 of these suspended orders. As of June 30, 2023, substantially all of the Company's backlog is expected to be sold within the next twelve months. 22 Table of Contents THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 2023 2022 2023 2022 Unit backlog, beginning of period 99.2 114.1 102.1 105.3 Unit shipments (27.7) (25.3) (52.9) (49.2) Unit bookings 21.3 23.2 43.6 59.1 Other adjustments — — — (3.2) Unit backlog, end of period 92.8 112.0 92.8 112.0 The following is the detail of the approximate sales value of the Company's lift truck unit bookings and backlog, reflected in millions of dollars. The dollar value of bookings and backlog is calculated using the current unit bookings and backlog and the forecasted average sales price per unit. THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 2023 2022 2023 2022 Bookings, approximate sales value $ 680 $ 760 $ 1,370 $ 1,710 Backlog, approximate sales value $ 3,610 $ 3,530 $ 3,610 $ 3,530 Second Quarter of 2023 Compared with Second Quarter of 2022 The following table identifies the components of change in revenues for the second quarter of 2023 compared with the second quarter of 2022: Revenues Lift truck HY Americas EMEA JAPIC 2022 $ 895.4 $ 596.6 $ 184.8 $ 64.9 Increase (decrease) in 2023 from: Unit volume and product mix 91.8 116.6 (10.4) (14.4) Price 77.9 51.3 25.4 1.2 Parts 32.0 29.3 2.7 — Bolzoni revenues 10.2 — — — Nuvera revenues 0.7 — — — Eliminations (8.1) — — — Foreign currency (3.2) (1.1) (0.2) (1.9) Other (6.1) (4.2) (1.7) (0.2) 2023 $ 1,090.6 $ 788.5 $ 200.6 $ 49.6 Revenues increased 21.8% to $1,090.6 million in the second quarter of 2023 from $895.4 million in the second quarter of 2022. The increase in Lift Truck revenues was primarily due to higher unit and parts volumes, mainly in the Americas and improved pricing in all geographic regions. The improvement in revenue was partially offset by a decline in unit shipments in EMEA and JAPIC. Bolzoni revenues increased in the second quarter of 2023 compared with the second quarter of 2022 mainly from higher volume and pricing. 23 Table of Contents The following table identifies the components of change in operating profit (loss) for the second quarter of 2023 compared with the second quarter of 2022: Operating Profit (Loss) Lift truck HY Americas EMEA JAPIC 2022 $ (15.7) $ 3.1 $ (10.8) $ (4.0) Increase (decrease) in 2023 from: Lift truck gross profit 95.3 77.3 15.8 2.6 Lift truck selling, general and administrative expenses (21.5) (15.2) (3.9) (2.4) Bolzoni operations 2.0 — — — Nuvera operations (1.3) — — — 2023 $ 58.8 $ 65.2 $ 1.1 $ (3.8) The Company recognized an operating profit of $58.8 million in the second quarter of 2023 compared with an operating loss of $15.7 million in the second quarter of 2022. The increase in Lift Truck operating profit was primarily due to improved gross profit from higher pricing of $77.9 million, mainly in the Americas and EMEA, a shift in sales to higher margin lift trucks and higher unit and parts sales compared with the second quarter of 2022. These items were partially offset by higher selling, general and administrative expenses for increased employee-related costs, including incentive compensation. Operating profit in the Americas increased primarily due to improved gross profit from higher pricing of $51.3 million, a shift in sales to higher margin lift trucks, higher unit and parts sales, as well as favorable material costs, partially offset by higher selling, general and administrative expenses related to higher employee costs, including incentive compensation. EMEA recognized operating profit of $1.1 million in the second quarter of 2023 compared with an operating loss of $10.8 million in the second quarter of 2022, primarily from higher gross profit from improved pricing of $25.4 million, partially offset by manufacturing inefficiencies and higher selling, general and administrative expenses. Bolzoni's operating profit increased to $5.4 million in the second quarter of 2023 compared with $3.4 million in the second quarter of 2022 due to higher gross profit from improved pricing and higher sales volume. The Company recognized net income attributable to stockholders of $38.3 million in the second quarter of 2023 compared with a net loss of $19.4 million in the second quarter of 2022. The improvement was primarily the result of higher operating profit (loss), partially offset by higher income taxes and interest expense. See Note 5 of the Company's condensed consolidated financial statements for further discussion of the Company's income tax provision. First Six Months of 2023 Compared with First Six Months of 2022 The following table identifies the components of change in revenues for the first six months of 2023 compared with the first six months of 2022: Revenues Lift truck HY Americas EMEA JAPIC 2022 $ 1,723.0 $ 1,154.3 $ 354.5 $ 116.6 Increase (decrease) in 2023 from: Unit volume and product mix 164.4 167.9 16.9 (20.4) Price 152.2 96.6 53.1 2.5 Parts 64.1 56.7 5.5 1.9 Bolzoni revenues 13.7 — — — Nuvera revenues 1.7 — — — Foreign currency (17.4) (0.2) (13.8) (3.4) Eliminations (10.5) — — — Other (1.3) (0.9) (0.7) 0.3 2023 $ 2,089.9 $ 1,474.4 $ 415.5 $ 97.5 24 Table of Contents Revenues increased 21.3% to $2,089.9 million in the first six months of 2023 from $1,723.0 million in the first six months of 2022. The increase was primarily due to higher unit and parts volume in the Americas, improved pricing and a shift in sales to higher-priced lift trucks in the Americas and EMEA. The following table identifies the components of change in operating profit for the first six months of 2023 compared with the first six months of 2022: Operating Profit (Loss) Lift truck HY Americas EMEA JAPIC 2022 $ (34.0) $ 7.5 $ ( 22.2 ) $ ( 7.7 ) Increase (decrease) in 2023 from: Lift truck gross profit 166.8 131.5 28.3 5.6 Lift truck selling, general and administrative expenses (32.7) (26.3) (2.4) (4.0) Bolzoni operations 4.4 — — — Nuvera operations (3.1) — — — 2023 $ 101.4 $ 112.7 $ 3.7 $ (6.1) The Company recognized an operating profit of $101.4 million in the first six months of 2023 compared with an operating loss of $34.0 million in the first six months of 2022. The increase in Lift Truck operating profit was primarily due to improved gross profit from higher pricing of $152.2 million, mainly in the Americas and EMEA, and a shift in sales to higher margin lift trucks and higher unit and parts sales compared with the first six months of 2022. These items were partially offset by higher selling, general and administrative expenses for increased employee-related costs, including incentive compensation. Operating profit in the Americas increased primarily due to improved gross profit from higher pricing of $96.6 million, a shift in sales to higher margin lift trucks and increased unit and parts sales, partially offset by higher selling, general and administrative expenses, related to higher employee costs, including incentive compensation. EMEA's operating profit improved mainly due to improved gross profit from improved pricing of $53.1 million, partially offset by material cost inflation and manufacturing inefficiencies. JAPIC's operating loss improved to $6.1 million in the first six months of 2023 from $7.7 million in the first six months of 2022, primarily due to higher gross profit from a shift in mix to higher-margin products and price increases, partially offset by higher selling, general and administrative expenses for increased employee-related costs and marketing programs. Bolzoni's operating profit increased to $9.8 million in the first six months of 2023 compared with $5.5 million in the first six months of 2022 due to higher gross profit from a shift in mix to higher-margin products and higher volume, partially offset by material cost inflation. Nuvera's operating loss increased to $19.0 million in the first six months of 2023 compared with $16.0 million in the first six months of 2022 primarily from higher selling, general and administrative expenses for increased employee-related costs, including incentive compensation, and product development. The Company recognized net income attributable to stockholders of $ 64.9 million in the first six months of 2023 compared with a net loss of $ 44.4 million in the first six months of 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 5 of the Company's condensed consolidated financial statements for further discussion of the Company's income tax provision. 25 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Cash Flows The following tables detail the changes in cash flow for the six months ended June 30: 2023 2022 Change Operating activities: Net income (loss) $ 66.0 $ (42.9) $ 108.9 Depreciation and amortization 22.5 22.1 0.4 Dividends from unconsolidated affiliates 10.5 15.6 (5.1) Working capital changes Accounts receivable (55.4) (100.4) 45.0 Inventories (19.8) (32.5) 12.7 Accounts payable and other liabilities 10.6 153.9 (143.3) Other current assets (7.3) (7.1) (0.2) Other operating activities 17.7 (8.5) 26.2 Net cash provided by operating activities 44.8 0.2 44.6 Investing activities: Expenditures for property, plant and equipment (10.6) (15.3) 4.7 Proceeds from the sale of assets and business 1.9 0.8 1.1 Purchase of noncontrolling interest (3.2) (8.4) 5.2 Net cash used for investing activities (11.9) (22.9) 11.0 Cash flow before financing activities $ 32.9 $ (22.7) $ 55.6 Net cash provided by operating activities increased $44.6 million in the first six months of 2023 compared with the first six months of 2022, primarily as a result of higher net income and non-cash adjustments for stock compensation and currency translation partially offset by changes in working capital items. The changes in working capital were mainly due to a decrease in customer deposits received related to down payments on orders partially offset by a smaller increase in accounts receivable in the first six months of 2023 compared with the first six months of 2022. The change in net cash used for investing activities during the first six months of 2023 compared with the first six months of 2022 was due to the purchase of Bolzoni's noncontrolling interest in 2023 compared with the first installment purchase of the noncontrolling interest of Hyster-Yale Maximal Forklift (Zhejiang) Co., Ltd. in 2022 and lower capital expenditures. 2023 2022 Change Financing activities: Net increase (decrease) of long-term debt and revolving credit agreements $ (15.8) $ 44.6 $ (60.4) Cash dividends paid (12.4) (11.1) (1.3) Other (0.7) — (0.7) Net cash provided by (used for) financing activities $ (28.9) $ 33.5 $ (62.4) The change in net cash used for financing activities was primarily due to repayments of debt in the first six months of 2023 compared with additional borrowings during the first six months of 2022. Financing Activities The Company has a $325.0 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 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, 26 Table of Contents each as defined in the Facility. See Note 10 of the Company's condensed consolidated financial statements 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 June 30, 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 June 30, 2023, the Company was in compliance with the covenants in the Facility. The new $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 new $25.0 million tranche will amortize on a monthly basis in the amount of $4.2 million per month. Key terms of the Facility as of June 30, 2023 were as follows: FACILITY U.S. borrowing capacity $ 235.0 Non-U.S. borrowing capacity 90.0 Outstanding 127.6 Availability restrictions 7.8 Availability $ 189.6 FILO LOANS LOANS OTHER THAN FILO LOANS Applicable margins, as defined in agreement U.S. base rate loans 2.25% 0.25% to 0.75% SOFR, EURIBOR and foreign base rate loans 3.25% 1.25% to 1.75% SOFR adjustment, as defined in agreement 0.10% 0.10% Applicable margins, for amounts outstanding U.S. base rate and SOFR loans — 0.50%; 1.50% Non-U.S. base rate and SOFR loans 3.25% 1.50% Applicable interest rate, for amounts outstanding SOFR 8.44 % 6.77% EURIBOR — 4.40% Facility fee, per annum on unused commitment — 0.25% 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, material real property, fixtures and general intangibles consisting of intellectual property and a second priority lien on working capital assets of the borrowers and guarantors of the Facility, 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 $800 million as of June 30, 2023. 27 Table of Contents 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 June 30, 2023, the Company was in compliance with the covenants in the Term Loan. Key terms of the Term Loan as of June 30, 2023 were as follows: TERM LOAN Outstanding $ 220.5 Discounts and unamortized deferred financing fees 3.7 Net amount outstanding $ 216.8 Applicable margins, as defined in agreement U.S. base rate loans 2.50% SOFR 3.50% SOFR adjustment, as defined in agreement 0.11% SOFR floor 0.50% Applicable interest rate, for amounts outstanding 8.72% The Company had other debt outstanding, excluding finance leases, of approximately $170.4 million at June 30, 2023. In addition to the excess availability under the Facility of $189.6 million, the Company had remaining availability of $25.9 million related to other non-U.S. revolving credit agreements at June 30, 2023. 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 Since December 31, 2022, there have been no significant changes in the total amount of the Company's contractual obligations or commercial commitments, or the timing of cash flows in accordance with those obligations, as reported on pages 23 and 24 in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. Capital Expenditures The following table summarizes actual and planned capital expenditures: Six Months Ended June 30, 2023 Planned for Remainder of 2023 Planned 2023 Total Actual 2022 Lift truck business $ 7.5 $ 44.1 $ 51.6 $ 20.3 Bolzoni 2.0 7.4 9.4 5.5 Nuvera 1.1 3.0 4.1 3.0 $ 10.6 $ 54.5 $ 65.1 $ 28.8 Planned expenditures for the remainder of 2023 are primarily for product development, improvements to information technology infrastructure and improvements at manufacturing locations and manufacturing equipment. The principal sources of financing for these capital expenditures are expected to be internally generated funds and bank financing. 28 Table of Contents Capital Structure The Company's capital structure is presented below: JUNE 30 2023 DECEMBER 31 2022 Change Cash and cash equivalents $ 65.7 $ 59.0 $ 6.7 Other net tangible assets 689.3 625.0 64.3 Intangible assets 41.3 42.7 (1.4) Goodwill 52.2 51.3 0.9 Net assets 848.5 778.0 70.5 Total debt (542.3) (552.9) 10.6 Total temporary and permanent equity $ 306.2 $ 225.1 $ 81.1 Debt to total capitalization 64 % 71 % (7) % PERSPECTIVES AND OUTLOOK Market Commentary The global economic outlook remains uncertain with continuing moderating activity in certain parts of the world, including EMEA. This weakness is due to tight monetary policies designed to contain inflation and labor market shortages, among other factors. Despite these challenges, the deceleration in the U.S.'s economy and lift truck market has been more moderate than previously predicted. The latest publicly available lift truck market data indicates that new unit, first-quarter 2023 booking activity decreased in all major geographies compared with strong prior-year levels but was still ahead of pre-pandemic volumes. Internal company estimates suggest that the global lift truck market decline accelerated in the second quarter of 2023, with all major geographies experiencing booking declines compared with the prior year. Looking ahead, the Company continues to expect a full-year 2023 lift truck market decline in all regions compared with 2022. This decline is anticipated to accelerate in the second half of 2023 compared with the first half in all markets. However, 2023's market unit volumes are projected to remain reasonably strong in most regions compared with pre-pandemic levels. Consolidated Strategic Perspective The Company believes the improving 2023 results are due to actions taken since the COVID-19 pandemic began, implementation of key strategies and projects and significant process improvements made over the past few years, all of which position the Company for substantial longer-term growth. The Company believes its more mature Lift Truck and Bolzoni businesses are the foundation for this improvement, while the Nuvera business has substantial growth prospects that have yet to be realized. Operational Perspectives - Lift Truck Business Second-quarter 2023 lift truck bookings decreased moderately from first-quarter 2023 and prior-year levels due to several factors, including a healthy, but declining, global market and a continued focus on booking orders with strong margins. Despite the bookings decrease, market share improved compared to the prior year. Looking forward, second-half 2023 booking levels are projected to be comparable year-over-year due to a steadier-than-expected market and anticipated market share gains. Full-year 2023 bookings are forecasted to decline compared with full-year 2022. Production and shipment volumes are anticipated to continue to increase in second-half 2023 compared with the prior year period. The Company expects its extended backlog to continue trending lower toward more normal levels over time as planned production rates increase and given bookings expectations. At the end of second-quarter 2023, the backlog of nearly 93,000 units was down 19% from its peak in the first-quarter 2022. Lead times and backlog levels will likely remain above desired levels for some time. However, this extended backlog, valued at $3.6 billion, which is almost a full year of revenue, should serve as a shock absorber for the business if bookings decline more rapidly. The trend of higher average unit booking and backlog prices and margins continued in the second quarter largely due to order selectivity and enhanced pricing to offset prior years' inflation. Although certain material and labor cost increases continue, the 29 Table of Contents rate of increase has slowed substantially, particularly in the Americas. Forward economic indicators suggest inflationary pressures will stabilize throughout the second half of 2023. As of June 30, 2023, the Company has worked through essentially all of its lower-priced, lower-margin backlog units booked before price increases implemented in 2021 and 2022 went into effect. In the second half of 2023, the Company expects to maintain an improved price-to-cost ratio, in part to address projected cost increases in certain categories and geographies. The Company continues to monitor material and labor costs closely, as well as the impact of tariffs and competition, and will adjust forward pricing accordingly. As a result of stabilizing cost inflation and the higher-priced truck production, the Company believes average unit margins will continue to increase in the second half of 2023 compared with the prior year period. This improvement is anticipated to continue into the beginning of 2024 as newer bookings with higher margins are scheduled for production. The factors outlined above, as well as the benefits from the Company's maturing strategic initiatives, are expected to lead to significant increases in revenue and operating profit in second-half 2023 compared with the respective prior year period. Operating profit in the third quarter is expected to decrease from the strong second-quarter results due to normal business seasonality combined with ongoing EMEA production challenges and an anticipated mix shift toward lower margin sales channels. Fourth-quarter 2023 results are expected to increase meaningfully over the third quarter, due in part to anticipated improvements in EMEA and the absence of planned production outages. However, these forecasts are highly sensitive, in particular to the impact of global supply chain adjustments and production capabilities. 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: • Provide the lowest cost of ownership while improving customer productivity, including for low-intensity applications. 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 vehicle automation, power options and operator assist systems; • Be the leader in the delivery of industry- and customer-focused solutions by transforming the Company's sales approach to meet a wide variety of customer needs across a broad set of end markets; and • 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 continues to make progress on its high priority projects. The Lift Truck business launched its heart-of-the-line modular, scalable lift trucks in the EMEA and Americas markets in 2022. Given the current extended backlog, the production ramp-up for this new product line is occurring gradually. The Company plans to launch these models in the JAPIC market in the second half of 2023. These products are expected to help reduce supply chain costs and working capital, and better meet customer needs. The Lift Truck business has key projects geared toward electrifying trucks used for applications now dominated by internal combustion engine trucks through the use of advancements in electric power options. The Company also has key projects focused on applying technology advancements in automation product options and operator assist systems. The Company delivered its first electrified fuel cell Container Handler to the Port of Los Angeles for testing in late 2022. In second-half 2023, the Company anticipates delivering an electrified fuel cell Reach Stacker to the Port of Valencia, Spain, and delivering a new electrified fuel cell Terminal Tractor and an electrified fuel cell empty Container Handler to a customer in Hamburg, Germany. The Company is also exploring options for other electrification projects within the European Union. Operational and Strategic Perspectives - Bolzoni Bolzoni anticipates a modest decline in revenues in second-half 2023 due to a projected market decline. As a result, second-half 2023 operating profit is expected to moderate from the strong first-half performance, but significantly exceed the prior-year second half as a result of continuing year-over-year margin improvement. 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 all global markets. As part of this approach, Bolzoni also intends to increase its sales, marketing and product capabilities in North America and Europe to support its industry-specific sales strategy. 30 Table of Contents Operational and Strategic Perspectives - Nuvera Nuvera's core strategy is to be a leader in the fuel cell business. Nuvera continues to focus on placing 45kW and 60kW fuel cell engines in heavy-duty vehicle applications for which battery-only electrification does not provide an adequate solution. As a result, these applications are expected to have significant and 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, which began testing in late 2022, in multiple European ports, which are projected to begin testing in the second half of 2023, in bus applications in China and India and in marine applications in the Netherlands. Nuvera is also developing a new, larger 125kW fuel cell engine for heavier-duty applications and plans to launch modular fuel cell-powered generators for stationary and mobile applications. In the second half of 2023, Nuvera plans to continue to focus on increasing customer product demonstrations and customer bookings. Nuvera is expanding its presence in Europe and China. Recurring orders from current customers are booked for the period and are expected to result in higher sales compared with the second half of 2022. The business expects to generate a lower loss in the second half of 2023 compared with the second half of 2022 and first half of 2023 largely due to anticipated higher shipments moderated by increased development and other costs. The increased volume of engine demonstrations should significantly enhance the foundation for future fuel cell engine technology adoption and improved financial returns. Consolidated Outlook At the consolidated level, second-half 2023 operating profit and net income are expected to be significantly higher than second-half 2022. Full-year 2023 margin expansion, led by strong first-half improvements, is expected to generate substantial operating profit and net income for the 2023 full year. This should drive solid progress toward the Company's 7% operating profit margin and greater than 20% return on capital employed goals at both the Lift Truck and Bolzoni businesses. These expectations are based on the Company's ability to effectively manage its ongoing component and labor costs and increase its production levels. The programs to reduce inventory and generate cash are anticipated to show substantial progress in the second half of 2023. The Company is committed to reducing its leverage and enhancing its cash flows through ongoing action plans and continued discipline over capital expenditures and operating expenses. Capital expenditures are expected to be approximately $65 million for full-year 2023, with spending more heavily weighted to the second half of the year. This full-year increase compares to significantly restrained 2022 levels. Higher expenditures are necessary to adequately maintain the Company’s facilities and product development programs. Working capital control continues to be an area of intense focus for the Company. Inventory levels remain elevated and above pre-pandemic levels but are decreasing. Efforts to maximize the use of on-hand inventory are expected to help reduce excess inventory levels throughout the Company in the 2023 second half. Supply constraints continue to be an issue periodically, while labor constraints are increasing, causing certain production and inventory usage challenges. However, the Company anticipates continued inventory improvements over the remainder of the year. As a result of these actions, the Company expects a significant increase in cash flow before financing activities for the full-year 2023 compared with 2022. Efforts to make further progress are expected to continue in 2024. 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 (loss) are addressed in the previous discussions of operating results. See also Item 3, "Quantitative and Qualitative Disclosures About Market Risk,” in Part I of this Quarterly Report on Form 10-Q. FORWARD-LOOKING STATEMENTS The statements contained in this Form 10-Q that are not historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are made subject to certain risks and uncertainties, which could cause actual results to differ materially from those presented. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Among the factors that could cause plans, actions and results to differ materially from current expectations are, without limitation: (1) delays in delivery and other supply chain disruptions, or increases in costs as a result of inflation or otherwise, including materials 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 31 Table of Contents 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 reduction in demand as a result of an economic recession, (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, as well as armed conflicts, including the Russia/Ukraine conflict, 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.