Al Rankin - Chairman, President and CEO, Hyster-Yale Materials Handling Colin Wilson - President and CEO, Hyster-Yale Group Ken Schilling - SVP, CFO Christina Kmetko - IR.

Mircea Dobre - Robert W. Baird Mike Shlisky - Seaport Global Joe Mondillo - Sidoti & Company.

Good morning. My name is Julie-Ann, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hyster-Yale Materials Handling 2017 Fourth Quarter and Full Year Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Christina Kmetko, Hyster-Yale Investor Relations, you may begin your conference..

Thank you. Good morning everyone, and welcome to our 2017 fourth quarter earnings call. I am Christina Kmetko and I'm responsible for Investor Relations at Hyster-Yale.

Joining me on today's call are Al Rankin, Chairman, President and Chief Executive Officer of Hyster-Yale Materials Handling; Colin Wilson, President and Chief Executive Officer of Hyster-Yale Group; and Ken Schilling, our Senior Vice President and Chief Financial Officer.

Yesterday evening, we published our fourth quarter 2017 results and filed our 10-K. Copies of the earnings release and 10-K are available on our web site. For anyone who is not able to listen to today's entire call, an archived version of this web cast will be on our web site later this afternoon and available for approximately 12 months.

I would also like to remind participants that this conference call may contain certain forward-looking statements.

These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today, in either our prepared remarks or during the following question-and-answer session.

We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly conference call, if at all. Additional information regarding these risks and uncertainties were set forth in our earnings release and in our 10-K. Also, certain amounts discussed during this call are considered non-GAAP.

The non-GAAP reconciliations of these amounts are included in our earnings release and available on our web site. Before we discuss our results, I want to talk a bit about the announcement we made in early December.

On December 6, 2017, we entered into a definitive agreement with KNSN Pipe and Pile Company Limited, to acquire a 75% in Zhejiang Maximal Forklift Company Limited, for an aggregate purchase price of $90 million. We expect to spend the purchase price with cash on-hand.

Maximal is a privately held Chinese manufacturer of utility and standard Lift Trucks, and specialized material handling equipment, specifically Class 1 electric and Class 5 internal combustion engine counterbalance utility and standard platforms, as well as Class 2 and Class 3 electric warehouse products, for both the local China and global markets.

Maximal also has specialized products for the Port Equipment and Rough Terrain forklift markets. This transaction was primarily driven by our desire to expand the breadth and depth of our geographic footprint. We have been in the China market for a number of years, but our market share has been limited and focused in the premium segment.

Maximal has achieved success in the utility and standard segments in this region, and in certain export markets.

This acquisition will allow us to start reaching this expanded customer base, and more effectively, meet our customers' needs by broadening our product offerings of utility and standard products, expanding our low cost, global manufacturing capability, to bring the design and production of our UTILEV product in-house and increase our participation in both the China market, as well as in the growing global utility and standard market segments, through a local and global distribution network.

This joint venture is also especially important to strengthening our current China operations, which are operating on a scalable level needed for long term success.

We expect the transaction to close during the second quarter of 2018, but is subject to customary closing conditions and requires regulatory approvals, and until those have been achieved, we won't have much more information to provide. Now let me discuss our results for the fourth quarter. I will discuss the highlights, and then get into the details.

In the fourth quarter, global Lift Truck markets continued the double digit growth trend that was struggling throughout 2017. When you exclude China, the market growth was not as substantial, but it was still very strong with an over 11% increase in double digit increases in all of our geographic segments.

In this strong market, we had a 13% increase in our fourth quarter Lift Truck shipments, and our ending backlog increased 10% over the prior year. On a consolidated basis, our revenues increased over 15% to $795.5 million, up from $690.6 million last year, driven by 15% growth in the Lift Truck business revenues and 22% growth in Bolzoni's revenues.

Operating profit also increased 95% to $16.4 million from $8.4 million last year, driven by the Lift Truck business. We reported a net loss of $2.4 million this quarter, but that includes the net unfavorable adjustment of $18.4 million or $1.11 per share, resulting from U.S. tax reform legislation enacted in late December.

Excluding the impact of tax reform, our consolidated adjusted income was $16 million or $0.97 per share, compared with consolidated net income of $12.2 million or $0.74 per share last year.

Overall, the Lift Truck business' results were significantly improved, which more than offset lower than anticipated results at Nuvera, primarily due to a $4.9 million asset impairment taken in the fourth quarter, after [indiscernible] Nuvera's long lived assets was triggered by the pushdown of Nuvera's breakeven target.

Bolzoni's revenues were higher than anticipated, but operating profit was lower than anticipated. In our Lift Truck business, fourth quarter 2017 revenues went up 15.2% to $751.6 million from $652.5 million in the prior year fourth quarter and operating profit increased 49.7% to $28.9 million this quarter compared with $19.3 million last year.

Our fourth quarter Lift Truck operating profit margin increased to 3.8% from 3% in the prior year. These increases were driven by improvements in all geographic segments, mainly as a result of higher unit shipments in all segments, and favorable currency effects in EMEA.

Overall, in these markets, our new products continue to sell well, especially our new Class 5 standard product and our new electric products. Those are the significant factors affecting our Lift Truck operating results. Now let me turn to Lift Truck business outlook.

I am just going to discuss the high level outlook, details regarding our individual geographic segments is outlined in our earnings release. The global Lift Truck market remains strong throughout 2017, which set new industry records in many areas around the world.

With this, we ended 2017 with a strong fourth quarter and full year operating results, as well as a strong backlog.

However, in pure numerical terms, the increase in bookings did not correspond to the unexpectedly large increase in the Lift Truck market, as we maintained our focus on a carefully paced ramp up and production and achievement of price goals, through sales of a richer product mix, while maintaining a healthy backlog to achieve production efficiencies.

We continue to achieve better pricing and we have seen greater demand for our higher value, in internal combustion and in trucks. We have realigned and increased the size of our sales and marketing teams to execute more effectively our specific industry strategies, as the means to target sustainable share gain.

We remain focused on increasing our unit volumes and market share in 2018 and in future years, through the continued implementation of our key strategic initiatives.

We expect the overall global Lift Truck market in 2018 to be comparable to 2017, with an anticipated modest decrease in the China market, offset by moderate growth in the Americas, EMEA, and Asia Pacific markets.

In this market, we anticipate the benefits from expected unit and price revenue increases, driven by continued investments in our strategic initiatives, will be partially offset by higher operating expenses and moderating material cost inflation, resulting in an increase in operating profit in 2018 compared with 2017.

However, we do expect 2018 net income to increase substantially over the prior year, due to the absence of the tax adjustments made in 2017 to the new tax reform legislations. As a result of the new U.S.

tax reform legislation, we expect our global Lift Truck effective income tax rate to be in the range of 21% to 24% in 2018 on our expected mix of earnings.

Moving to Bolzoni; Bolzoni reported net income of $600,000 and revenues of $49.4 million for the fourth quarter of 2017 compared with net income of $1.6 million and revenues of $40.5 million for the fourth quarter of 2016. Bolzoni's operating profit was $1.5 million for the fourth quarter of 2017 compared with $1.7 million last year.

Bolzoni's revenues increased as a result of higher sales volumes, driven by the EMEA and Americas markets.

Despite these higher volumes, operating profit and net income decreased year-over-year, as benefits from increased revenues were more than offset by material cost inflation, currency, and higher operating expenses associated with Bolzoni's growth initiatives.

Looking forward, as a result of anticipated growth in both the Americas and EMEA and the continued implementation of sales enhancement programs, Bolzoni expects revenues in 2018 to increase compared with this year.

In addition to the anticipated increase in revenues and expected operating leverage resulting from the sales growth, we expect the continued implementation of several key strategic programs to generate substantial growth in Bolzoni's 2018 operating profit and net income.

Finally, in our Nuvera segment, Nuvera reported an operating loss of $13.9 million in the fourth quarter of 2017 compared with an operating loss of $12.6 million last year. As previously mentioned, Nuvera's fourth quarter operating loss includes a $4.9 million asset impairment charge.

Excluding this charge, Nuvera's operating loss was lower than 2016, primarily as a result of lower product development and production startup costs.

The organizational realignment between Nuvera and the Lift Truck business, that we have been discussing for some time now, was complete as of December 31, 2017, with the exception of the transition to manufacturing of the current battery box replacements from Nuvera to the Lift Truck business.

Due to the relatively high cost position and limited product range of currently available battery box replacements, we are taking a measured approach to developing Nuvera's customer base, by building relationship with customers that are willing to pay a premium for the high powered entity of the Nuvera solutions, and the product support now offered to our electric business.

In addition, the Federal Fuel Cell Tax Credit was recently extended for a five year term retroactive to January 1, 2017, which we believe, makes the economics of fuel cell driven forklifts more compelling.

During the fourth quarter, a number of additional units were built for further testing and development by the Lift Truck business, and demand for battery box replacements continued to increase. Nuvera shipped over 110 battery box replacement units in all of 2017, with more than half of those shipments occurring during the fourth quarter.

The backlog for Nuvera units was just over 300 at year end. We expect demand to continue to increase in the first quarter of 2018 and gradually grow throughout the year. As the supply chain matures and volumes increase, we expect the costs for battery box replacement components will decrease.

We expect production to begin at the Lift Truck business' manufacturing plant in Greenville, North Carolina in early 2019, with a steady ramp up in demand anticipated. In addition, in that same time frame, battery box replacement manufacturing at Nuvera's Billerica facility, is expected to be phased out and transferred to the Lift Truck business.

Our current target is for Nuvera to achieve breakeven within the next two years. Although this target could be achieved earlier or later, depending on sales volumes for fuel cell powered Lift Trucks, as well as cells in other markets.

Operating losses in 2018 are expected to modestly decrease compared with 2017, moderating more substantially over 2019. However, we expect the 2018 net loss to be comparable to this year, because Nuvera will realize a smaller tax benefit on its losses due to our lower effective income tax growth under the new U.S. tax reform legislation.

Before I open up the call for questions, I wanted to make a comment about our cash position and cash flow expectations. Our year end 2017 cash position was $220.1 million, substantially higher than the $43.2 million balance at the end of 2016. Our debt balance was $290.7 million compared with $211.2 million last year.

These increased balances can be partially attributed to the new $200 million term loan facility we entered into in the second quarter of 2017. Also you may remember, that in December 2016, we experienced an unplanned acceleration of payments, which resulted in lower cash levels and higher debt levels at the end of 2016.

Excluding the favorable effects those accelerated payments had on our first quarter of 2017, we expect a consolidated cash flow before financing activities to increase significantly in 2018 compared with last year, primarily due to an expected cash dividend from the company's financing joint venture, during the first part of 2018, resulting from the U.S.

tax reform legislations. That concludes our prepared remarks. I will now open up the call for your questions..

[Operator Instructions]. Our first question comes from Mick Dobre from Baird. Your line is open..

Good morning everyone..

Good morning..

Maybe a quick question on the Americas; if I am looking at the implied average selling price, just based on your revenue and unit shipments, calculating that out, it seems like the ASP has actually deteriorated on a year-over-year basis, which is to me, a little bit surprising, given that you are reporting really good mix, you are talking about IC, especially heavier trucks.

So how do we make sense of that in your Americas? Is there something else going on over there, maybe I am misinterpreting mix, can you help me understand that?.

Mick, I think it's just a matter of the mix of the customers that are in the backlog. We have quite a bit of national account work in the backlog. Also, due to that customer mix, we have trucks that have less higher spec or lower spec than lower standard trucks in that mix. So that's what's driving down the number a bit.

But when you look at in total, units in backlog globally are down slightly from the third quarter, but our value is still very high, it's at a record level of the dollar value of the backlog globally. And if you divide that out, our global mix is actually up on average sales price.

I think it's the tale of what's the backlog book in the Americas versus what's our backlog book across the rest of the world..

Yeah. And I am getting to that in a second here.

I just wanted to make sure that I understand what happened in the quarter itself in Americas; because obviously, that factors in into the margin as well, when we are looking at 4.9 versus you running in the 6s previously?.

But don't forget, that you can have a lot of low value units that bring down the average selling price, but don't make much difference on profitability. And so, I am not sure you can figure the mix value of gross profit, while I am looking at those numbers. So I'd be careful about that..

Okay. Going back then to the point that you just made on orders and backlog as a whole. I agree, I mean, my own implied math here is that you had actually quite a nice uptick. As I am seeing it here, your ASP is up something like 3%, which is pretty strong, and it looks like the mix is a lot richer too.

Can you maybe talk a little bit about what's happening here? In my mind, if that's kind of the starting point going into 2018, then you should be having pretty good mix and price costs, at the price dynamics to help your profitability? Is that fair?.

Yeah, that's fair. I think you have also got to look at the investment we are making in sales development. In those numbers as well, we are increasing our expenditure. So that's really the offset to that stronger market, stronger sales is the continued investment in the market share growth programs..

I think there is also maybe two dynamics going on. I mean on one hand we are seeing an increase in demand for higher value piece of equipment, everything from four ton and upwards. At the same time, we are seeing a big increase in the demand for the really cheap trucks.

The small value Class 3 trucks and when we talk about the overall market increasing, every truck counts as well, and whether it's $2,000 pallet truck or $700,000 piece of container handling equipment, we have done better in 2017 on the higher value stuff, and if we look at it from a pure market share play, we did less well on the lower value equipment.

We do have some programs to address that in the medium term, but if you look at the quality of our backlog, it's very strong, and we expect that to continue going forward into 2018. And whatever you might look at in the Americas, as far as the fourth quarter is concerned, I don't think there is any trend there.

I think this can be said, it can swing quite significantly from quarter-to-quarter. I think overall, the trend is for a richer mix of truck and generally speaking, with value rich specifications..

But you know, having said that, I look forward in the Americas through 2018. The big drivers are volume and price, and price is a big driver, because cost is increasingly a big driver. Costs are going to be going up, and that's a real concern, as we look forward to trying to anticipate those increased costs.

We have forecasting methods for costs and look forward from the time we strike a deal to six months forward -- four to six months forward, when we might deliver that cost. So you have got some mix, but it's not a predominant factor, I think, as we look forward.

You have got a lot of moving pieces, and of course, it all adds up to prospects that we see at the gross profit level, over the year, particularly and I think of the first quarter, we see some pretty good gross profit improvements and in total, over the year..

Yeah. I appreciate that. I mean, that's what I am really struggling with here, because if I am looking on the face of it, it looks like the business is in a really good shape. I mean, your orders are looking good, your backlog is looking good, the price you have gotten overall in the quarter and the Q is looking pretty good.

And I am looking at your guidance, and you are essentially saying that you are going to have material headwinds that hamper your profitability in the front half of 2018. This is not just you, this is happening broadly in machinery.

I am trying to understand, what is the extent to which material costs are hurting you, and what can you pass-through with costs?.

The other thing that's happening is, is that we are increasing our operating expenses, as we implement further reinforcements to the industry share gain and industry selling efforts that we are putting in place.

We view that as more of an investment than expense, but it shows up as an expense, and once we get that in place, we expect that over the course of 2017-2018, we expect it to level off. But we are still in a position, we are prepared to invest in these programs that we think can really drive our long term position.

So there is quite a bit of that going on in our overall structure, particularly on the operating expense line..

But I would say, as far as material cost of concern, Mick, that starting position with the divisions is always to cover material cost replacing, and that's what we have -- [indiscernible] plans for 2018..

Okay. Well I can appreciate --.

It can catch up as we go through the year. Obviously, we are seeing some catch-up as we go through the year. By year end, we expect to catch that all up. There is some catch-up involved in Q1 in particular, that we will see..

So can you help us understand what raw materials are as a percentage of your cost of goods sold?.

More than 50% of the cost of a forklift truck is steel. Whether it's steel we buy, or steel one of our suppliers has to buy. And depending upon the timeline of the supply chain, those increased steel costs ultimately pass-through to us. We can pull back the buyer --.

We don't buy that amount of steel, it's bought by other suppliers. So it's in the components that we buy, it's not in the steel that we buy..

Oh, so that's really helpful.

When we are thinking about sort of the delay if you would, between the pricing actions that you implement versus what's coming through in your P&L, is it fair to say that this typically normalizes within a six month time span, hence your guidance for front half, back half, or is there something else that we should keep in mind?.

It varies very much by supply, and where it is coming from in the world, as far as the components are concerned. I mean, we do buy steel Mick.

I mean, we don't buy a lot of it into the U.S., we buy quite a bit of it in Mexico, just to put color on to my previous comment, that -- what we have tried to do always with our supply is push out price increases as far as we can, and as far as what we could buy from a steel point of view, we try to lock in when prices are favorable, three month, six month forward contracts.

As far as we can negotiate with the middles and the suppliers. As far as our regular components suppliers are concerned, again, we try to push up any price increase, we know it's coming, therefore we put our truck prices up, and I wouldn't say a whole, but plan for the two to be as synchronized as possible..

Okay.

I want to talk a little bit about your China acquisition and I understand that in some ways, maybe you are going to be limited in what you can say, but I am trying to understand your vision for this deal, how you are thinking about your participation in that market, as well as that product, as part of your global portfolio?.

Let me comment on that. We believe that it is strategically a really critical move for us. There are many areas of the world, where we think that Chinese design and Chinese cost product, particularly Chinese cost product, even with more western designs, will be necessary at what I would call utility and the lower end of standard products.

Its particularly true in emerging countries, in Asia, but it's also true in countries in Latin America, Eastern Europe, a whole variety of areas. So if we want to be -- continue to be a full line supplier on a cost effective basis, on our world operations, we have to have a basic operation of scale in China.

Our Shanghai operation doesn't have adequate volume, but more importantly, it is in the business of producing the types of products that I just described.

We believe that Maximal is a really outstanding company that fits our requirement, as good management by Chinese standards, very good management, and very good engineering, and it gives us the volume and the types of products that we need.

We work closely with Maximal to enhance the quality, reliability and performance of the types of trucks that Maximal builds and flesh out the rest of the product line. So it's producing these lower end of standard and utility type trucks for world markets. They may even be used in developed markets to a much smaller percentage.

It is sort of needed around the world, and in a relatively quick period of time, we will bring into the Maximal factories, trucks that we currently outsource, that we sell in the UTILEV product line. We think they will be much more competitive, both in terms of costs, and in terms of performance characteristics and what we have today.

So from a strategic point of view, that's the lynchpin. Then secondly, we do expect to participate in a more significant way in the China market.

We have been positioned mainly in the premium side of the market, mainly for developed country users and the acquisition of Maximal gives us a participation in the broader market in China, and therefore, an opportunity for us to grow in that regard.

So there are two really completely different, but complementary strategic rationales for doing what we are expecting to do, when the Maximal deal closes..

That makes a lot of sense. I mean, hopefully, we will be able -- once the deal closes, to get some, maybe some numeric perspective as to how you are thinking about it longer term and the contribution it could make.

My last question is really on Nuvera, and I know we discussed this segment back and forth on calls, but I struggle to really see any operating improvement here. You have had this business for three years. It's something like $100 million worth of pre-tax that has been sunk into this business, now you have taken a charge.

And I am going to ask the question that I have asked before, at what point in time do you conduct an assessment here and you decide that you might need to alter course and really kind of redirect the earning power of the business away from this?.

We don't expect to do that at all. It's just not part of our strategy, if something happened at some future time. But we feel -- all I can say is, I think we feel a lot better about it than we did a year ago.

We have professionalized the business and we are moving it forward and what we think, as an orderly constructive way and from a long term perspective, it's by far the biggest opportunity that our business has to add profitability to our overall company..

All right. Thank you very much..

Our next question comes from Mike Shlisky from Seaport Global. Your line is open..

Good morning everybody. I have got to get a little bit of nitpicking on my questions here to start off real quick unfortunately. First I want to ask about the income from the affiliates line, you had additional 19 -- I think it was $19.8 million of income there, and see how you adjusted it in your press release out of EPS, which makes sense.

But it seems to have not been adjusting out of adjusted EBITDA, so your EBITDA was almost $20 million higher than it probably would have been, without that onetime item.

Is that correct? And is there any reason why you didn't want to adjust it out, it's a 35% plus of your EBITDA for the quarter?.

Yeah Mike, you are absolutely correct. The $19 million is the improved equity earnings in our JV, our finance JV in the U.S. We tried to stick to us a very strict interpretation of how you calculate EBITDA. So only the interest, taxes, depreciation and amortization on our financial statement were the items we called out.

In your analysis, if you would pull that out, that would be your version of EBITDA, as there is no standard EBITDA out there. But you are absolutely right..

It would be not unreasonable to think about that onetime increment as the adjustment of the nature that you suggest. But the way the accounting works, it doesn't qualify in GAAP accounting in the year as Ken mentioned..

And in kind of the flipside of that, Mike, we also didn't exclude the impairment charge from Nuvera in the EBITDA calculation. So something that doesn't fit that definition, we don't kind of create an adjusted EBITDA number for..

Actually, we did include it..

It looks like you did include it..

Oh, I am sorry..

Yeah you took one up. I mean I guess, I mean, it is what it is. But I was a little bit surprised by that, I suppose. All right, no problem we can work back on there.

Secondly, this is also a bit nitpicky, but on Nuvera and your outlook for 2018 here, you know that you will be seeing operating losses decreasing modestly from 2017, is that declining modestly from what you have booked here, which is about $42 million operating losses or should I take out the impairment, and is it some kind of improvement off the $37 million or so?.

Take off the impairment..

Okay.

So it's going to be an improvement from $37 million not from $42 million loss?.

Correct..

Okay. Got it. Thanks. Also wanted to ask more broadly about your Lift Truck outlook for 2018 as well. It looks like you are going to be having some kind of growth this year. Even if the market is flat, thanks to some of your hopefully good initiatives to kind of gain share. That sounds very positive.

I am just kind of wondering, if your long term goal is still to get to that 115,000 units pre-Maximal capacity. You rather and get it to a 10% plus growth this year in units.

Is that still feasible, based on what you know or could you maybe -- into the teens, if possible, or could you might fall short of that 10% growth that you might need to kind of keep that ramp going towards the full 115,000 to 2018?.

Well we are going to keep it going, and I don't think we would comment on just exactly what those numbers are going to be in the forecast. But yes, we do intend to keep it moving in the right direction. And we still have our commitment to the longer term or the middle term goal of getting to the 115,000 units.

I do think that we have made some additional GS&A investments that will be part of getting us to a 115,000 units and hopefully beyond that. And so, we are going to have to calibrate that in during the course of 2018, and see how that affects some of our thinking.

But we have got a lot of things going on, that we believe can have a very positive impact as we look forward. Just to sort of run through them, we have got products that we think -- that are targeted to begin coming out in 2020, that should have considerably lower cost and more ability to meet the customer specifications effectively.

We believe that it's not only -- that it's a broad base of lower costs. We also have programs to reduce costs over and above direct product costs, including in our manufacturing operations.

And so between the products and the cost reduction, we see -- if you look out into that period, the opportunity to build volume by offering more cost effective solutions to our customers, and you couple that with the -- and the shared growth and the profit improvement that we think we can gain, particularly in certain areas of the product line, with the kind of a two year perspective on getting Bolzoni to breakeven, and we think that means, that if you look out two or three years -- I mean at Nuvera, excuse me; if you look out two or three years, you have got real opportunity.

And in the meantime, if you take another couple of years with Bolzoni, we think the opportunity to continue their revenue growth and enhance profitability is very high.

In the fourth quarter, Bolzoni had to deal with significant material cost increases, given the nature of their business, the attachments and a lot of steel, the cost increases come on them very fast, and their ability to pass those on right away to their customers is a little different than it is in the core Lift Truck business.

But we view that as a short term kind of phasing issue and from the long term point of view, we see real revenue and profit growth opportunities in Bolzoni. So from our perspective, if we continue to work our plans in the forklift truck business in Nuvera and Bolzoni, over the next, two, three, four years, we see some real opportunities..

That's great color.

And perhaps the last one for me, if you have a bit lower tax rate in 2018 and hopefully, [indiscernible] cash flow in general from improving business trends, you know with these tax savings, with the ability to bring cash back to the United States, have you ever -- as to what you might do with any outsized cash flow going forward? Is there a way you can use it to kind of speed up the development with Nuvera at all perhaps, or is there a way to even do the kind of -- get that going faster, because I am getting the sense too, it's kind of like, maybe that there are some impatient investors out there? Thanks..

Well you know, there could be impatient investors for sure. We really can't manage the cycle around that in our individual businesses.

And I think that the only fair answer to your question, with regard to Nuvera is that, we believe we are going forward in the prudent way, step by step, carefully orchestrated on in the following way, to expand the battery box replacement product line, product by product.

Second, to have for each individual battery box, a time phase scheduled cost reductions, which reflects our anticipation for engineering changes and supplier cost reductions to the components that we are using, so that we drive the cost of the components down, and then get the value of volume purchasing and volume manufacturing.

That's not really a process that lends itself to speeding up any more than we are. We want to be very careful. We want to ensure that as our products come online, that we have the reliability and quality that the Hyster and Yale products stand for, and to be the leader in the industry in that regard. So that's kind of the Nuvera story.

But more broadly, you know, our company has not -- by, it doesn't have a character of being a capital allocator. Our position is, we are going to do what is prudently and appropriate necessary to build value over the long term in each one of our businesses.

And in that regard, certainly, the new tax law has couple of impacts, it will help us generate cash, which may pay down debt and give us more flexibility over the long term, to do other things that can benefit the business.

But most importantly, in my judgment, this tax reform gives us a level playing field on an after-tax basis with our global competitors. They have not faced many years, the tax regime that we faced. So it's very difficult for us to make the same kinds of investments and have an expected comparable reward.

So this levels the playing field around the world, and we think that's going to be beneficial from a competitive point of view, and that's really the most important piece of that, that I would emphasize. As far as the location of our capital is concerned, we will simply have it where think it's the best place to have it from a business point of view.

We are not moving it back, just because the rules change, we will try to run our business as we always have in the most prudent kind of way, and we will.

Certainly, Ken and his finance team will give thoughtful consideration to the implications of the new tax regime to where debt and equity need to be, to properly capitalize each of our businesses around the world.

And Ken, I would guess that simply changes to some degree, as we look forward, because of the nature of both the global tax rules, but also the rules that are associated with making sure that people don't gain those tax rules. So we have some thinking to do.

We will work our way through it, and probably be in a better position to comment in more detail, after the federal government gives us some regulatory guidelines.

And I think it's fair to say, nobody is quite sure what the story is, is that right?.

That's right, Al. I mean, we do have international operations prior to the tax act. We are planning prudently, as any U.S. company, to keep cash offshore, to the extent we generated our offshore. The other side of it though, is that we were investing offshore.

So we bought Bolzoni, we have got Maximal teed up, and so a lot of our -- we aren't in the Apple situation, where we can bring sizable amounts of money back from overseas at this point, because we have deployed them.

The tax rules of course are a little bit odd, in terms of what they consider cash, or including receivables in that calculation for the repatriation toll charge, and in doing so, that really expanded the amount of tax that we would have expected to have to pay on cash held offshore, because our cash number isn't really that large.

Having said that, I think tax reform will help us a bit. But I wouldn't put a whole lot of stocking, that it's going to reduce our effective global rate substantially. It will make the U.S. more competitive, compared to the other places in the world that we participate in.

Does that help you?.

Yeah. I think that is great color guys. I appreciate it. Good luck..

Mike, before we get away from you, I just want to -- for the benefit for everybody on the call.

The reason we did not back out the $19.8 million from the EBITDA count, is because EBITDA tends to be a calculation to take you back to your cash earnings of the business and get rid of the non-cash items, and we will receive that $19.8 million as a dividend in the first quarter..

Yeah. And under our agreement with our partner, dividends are paid based upon the capital structure of the business, because equity went up. As a result of this, we will see a dividend. It will be --.

Another point is, it's a onetime event, and we agree with that..

We agree with that totally [ph]..

Okay, perfect. Thank you very-very much guys..

[Operator Instructions]. Our next question comes from Joe Mondillo from Sidoti and Company. Your line is open..

Hi guys. Good morning..

Good morning..

Wanted to ask you about sort of a competitive environment over the last couple of years, you guys have certainly been focusing on -- you talk about in all different kinds of your business segment, strategic investments. It's really weighing on your cost structure in the near term. Obviously you are hoping for a long term benefits.

But even, say for instance Bolzoni, you saw 22% rev growth and you saw a decline in the bottom line there.

So could you talk about your overall competition? Are your competitors economically -- is their behavior appropriate? Is there more competition? Because certainly, you guys are pumping a lot of investment for the long term that's hitting sort of cost of goods sold and SG&A?.

Well let me just comment first on Bolzoni, because I don't think it should be included in the -- particularly in the investment comments. There will be some investment in Bolzoni, but the issue was two things; number one, in a modest way, currency, which drove up the revenues without having as large an impact on gross profit.

But most importantly, gross profit was constrained by material cost increases in the fourth quarter in a significant way. That in no way, was an investment. That's something we have to look to correct over the next few quarters. So I think the investment issue is not a major one at Bolzoni. Although, we will be building the U.S.

portion of the business and making investment in that, as we look forward, and that if -- that will be worked into our thinking in that business. You know the Nuvera story, that's essentially -- it is an investment story, and it is going to operate, we hope, with the timeframe that we outlined for you.

With regard to the forklift truck, and I would just say, in regard to competitors that, we have one significant competitor today. We think that -- we are hopeful that the business will have a somewhat different cost price relationship, in the context of the new tax benefit for fuel cells, that is in the new tax legislation.

I think we will have a better feel for that, as the year goes on, that it would certainly be our hope, that that will help us to moderate the cost price discrepancy in the marketplace that we are seeing now, and we have a hunch that our competitor --.

For the Nuvera business..

In the Nuvera business, that our competitor has been operating on that basis for some time, and maybe a little bit differently than we have. So that's one point. Then you come back to the core Lift Truck business, and you know, I think we -- it's a competitive business.

By and large, we have got good competitors around the world, where they have good products and good capabilities. The weaker ones are in a declining position, the stronger ones are staying strong. It's a fairly limited number of strong competitors. It remains to be seen, whether the Chinese competitors become a major factor in international markets.

But at the current time, they are selling a product overseas, that is not a traditional developed country product, and it would be focused in a different way than this time, at least for the time being.

We have outlined to you what our strategy is on the other portions of our investment, and particularly in GS&A and we are very prudent about, very-very careful, and we think that the -- we have about the right balance of investment and expectations. But there is no question, we have a fairly long timeframe in terms of how to build the business.

And we are comfortable with taking a three to five year forward look in these kinds of things, investments in that -- in product and in sales and marketing, that we view more as an investment and of course, GAAP treats them as expenses. So that is the perspective.

We will keep you posted on where we are in that, and I'd just conclude by saying that, you know, we have a higher return on capital employed, than we think anyone else in the industry. It's around 20%.

That's a terrific return on the capital that we have invested in the business, and so in that sense, while our margins at operating profit level are not as high as some of our competitors.

In percentage terms, they have a lot more capital, because they tend to be involved in other associated businesses, such as leasing or dealer ownership that are quite capital intensive, that we are not involved in. So our strategy gives us very good returns on capital, and we do keep our eye very clearly on the capital deployment side..

Okay. So my next question was going to be really with Nuvera, and I would just -- I guess, initially structure it as considering that you are talking about returns on capital. How do you look at returns on capital there, because, obviously you bought that business thinking that you are going to have to sink in, maybe almost $50 million.

It looks like in the end, according to your projections, it's going to be three times upwards of $150 million potentially.

How do you think about return on capital of that magnitude?.

I think what I would suggest is, that you have to think of this as a venture business, and that the venture business payout comes in the long term, and it would be our hope that it would be a very-very large payout.

And one of the reasons that we separated the forklift truck application portion of the business from Nuvera, is that we think that there will be applications, where our fuel cell engines and other industries than the forklift truck industry. So it's a different kind of game. It has a longer time horizon.

I think it should be valued and thought about much more as the venture business, than as a traditional business. But we think in the long term, that the investment will prove to be well worth the -- what we put into it, in terms of the return and the profitability and the size of the long term business..

Okay. And just in terms of -- trying to go into more detail with Nuvera, could you provide some color? Because obviously earlier in the call, you actually stated that you are actually feeling better than you were a year ago.

In our vantage point, we see really no revenue, so there is no change in revenue, the losses are actually comparable sort of to a year ago. They have been consistent over the last several quarters.

I thought that Billerica production was supposed to be transitioned to Greenville by the end of this year, and it's looking like early 2019, so that seems to be sort of pushed back, and we have been talking for --.

That's probably more than a quarter of that. So it's the difference between the end of 2018 and the beginning of 2019. I wouldn't give any particular significance to that issue..

Okay. But in addition to that, you have been talking about sort of the challenges with the supply chain. Since the sort of integration of the product, which was in mid-2018, so we have seen about -- spent about 20 months since then, and from our vantage point, it doesn't seem like anything is really happening or progressing with that.

Of course, we are not inside the business.

So could you provide some color on, at least, why you feel like things are actually progressing?.

Well if you looked at the quality of the product and the way it's being manufactured today, and had the opportunity to see it physically the way we do, and the professionalism that has been brought to, what was essentially a developmental product capability. I think you'd have a flavor for why I made the comments earlier.

The meantime between failure and the units is coming down. Our reliability is moving in the right direction. There are plenty of challenges ahead. It's a high technology business, but it's one we think we can be a leader in, in the long term. We do have a pretty good backlog, as I think you noted, in the earnings release, as we go into the year.

Frankly, from our point of view, we don't really want to have too much more in the way of shipments in 2018 than we are currently planning. What we are aiming to do, is to ramp up the shipments, as the cost comes down.

So think of the costs coming down over the course of 2018, and then the volume ramping up after the cost comes down, and that's the approach that we are working.

In the meantime, we are going to customers, where we feel they have the most direct ability to benefit from fuel cell, and are less price sensitive about the price, particularly given the power density and the productivity capabilities for customers of our products. So I kind of think I'd leave it there.

I mean, we understand that, you all probably don't tend to look at this as a venture business and watch those kinds of businesses. But I don't think this is out of character, with that kind of a business.

And when I am -- but I do reiterate my comment, and I think Colin shares it, that we feel really enormously better about the state of the business, as we go into 2018, in comparison to the level of professionalism and design and cost capability, and the clarity of the development program that we had a year ago..

Another thing is, the fuel cell tax credit. A month ago, we weren't banking on that being reinstated, and it has been reinstated, and that really changes the economics of fuel cells quite dramatically..

That could be a pretty big deal. We don't really want to comment too much on it at this point. But Ken may give you some more lever on that in another quarter or so, when we have a better fix on exactly how that's going to work in the situation for us. But that is a large number.

We think that much of the current pricing in the marketplace has been predicated on the existence of that, and we haven't enjoyed it in the past, and so as we moved towards the producing units, it could help us get over the bridge, with some of the cost issues, until the development programs mature and the individual battery box by battery box cost reduction and engineering improvement programs take hold..

So at this time, is the biggest challenge just the supply chain? And if so, if you feel like you could drive higher volume and higher orders and your competitor is certainly seeing higher orders, how come you can't just go to your supply vendors, and say listen, we are looking at volume increases of this, can you do better on a price standpoint?.

No, no. I think we have to be much more clearer on what we mean when we talk about cost reductions. These are not cost reductions in the main that come from just going to the same supplier and say reduced costs. And they are not strictly volume oriented. Many of them are redesigned products, redesigned components.

Many of them are situations where we take a couple of components and turn them into a single component and go to a different supplier. But all of these are explicit defined projects that come to bear on each of our battery box replacement units, you know at specific points in time over the next couple of years.

So it's not a question of just leveraging our supply base, it's much more sophisticated, much more complicated than that, and much more integrated with the engineering input into the battery box itself..

But we have a plan for everything to move every single component, every single action..

Okay.

Just last question, I don't know if you can comment, but just wondering, related to the Chinese acquisition compared to prior acquisitions, do you see any higher risks with this deal not closing as maybe other deals?.

Well the only thing I would say in that regard, is that we are being very-very careful. We have a due diligence process, that is very-very comprehensive, which we think is appropriate for this kind of a company, and at this point, we have no reason to think that we won't work our way through those in an orderly way.

But if we see something that doesn't comply with the closing conditions, we will flag it. But at this point, we don't see such a thing..

Yeah, I think we did a lot of due diligence before we signed the SPA. So really, we are into a period now -- we are still doing some due diligence, but it is more validation of things that we expect to happen between signing the SPA in --.

That's a fair comment..

Okay. Thank you..

Okay, thank you..

We have no further questions at this time. I turn the call back over to the presenters..

Thank you for joining us today. I don't believe we have any follow-up comments. So I think that's it. Have a great day, and if you have any questions, please feel free to call me at 440-229-5168. Have a good day..

And a call recording of this call will be available today, February 2018 at 1:00 PM Eastern Time. Please dial-in at 800-585-8367 or 855-859-2056, enter the conference ID number of 3798022 to listen. This recording will be available until Wednesday, March 7, 2018 at 11:59 PM Eastern Time. Thank you. This concludes today's conference call.

You may now disconnect..