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Business Context and Reporting Period

Company: NMHG Holding Co. (Parent of Hyster-Yale, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2004
Business Overview: NMHG designs, manufactures, sells, services, and leases lift trucks and aftermarket parts globally under the Hyster and Yale brands. Operations are managed through two segments: NMHG Wholesale (manufacturing and sales to dealers) and NMHG Retail (wholly owned dealerships and rental companies). The company is a wholly owned subsidiary of NACCO Industries, Inc.

Key Financial Metrics

Segment Performance (Nine Months 2004):

• NMHG Wholesale: Revenues of $1,316.5 million; Operating Profit of $22.8 million.
• NMHG Retail: Revenues of $144.5 million (net of eliminations); Operating Loss of $2.1 million.

Material Changes vs. Prior Period

Revenue Growth: Consolidated revenues increased 21.2% in the third quarter and 16.4% for the nine months ended September 30, 2004, compared to the prior year. This was driven by a 15.6% increase in worldwide unit shipments (Q3) and favorable foreign currency translation.

Profitability Decline: Despite revenue growth, Operating Profit decreased 10.3% in Q3 and 39.3% for the nine-month period. The decline was primarily caused by a significant increase in material costs (specifically steel) and higher selling, general, and administrative expenses.

Unusual Items: Net income for the third quarter was bolstered by a $6.7 million pre-tax anti-dumping settlement awarded by U.S. Customs. Without this item, operating results would have been significantly lower.

Cash Flow: Net cash used for operating activities was $11.3 million for the nine months ended September 30, 2004, compared to $9.8 million in the prior year period. This was largely due to a $63.5 million increase in inventory levels.

Guidance, Outlook, and Risks

Outlook:

• Market Demand: Management expects stronger lift truck markets in Q4 2004 and 2005 in the Americas and Asia-Pacific, with relatively flat markets in Europe.
• Production: Unit shipment levels are expected to increase at controlled rates to accommodate the phase-in of new products starting in Q1 2005.
• Costs: The company anticipates continued challenges with rising material costs (steel). Price increases implemented in September 2004 are expected to mitigate these costs, with full realization in 2005.
• Restructuring: Ongoing manufacturing restructuring programs in the Americas (completion expected end of 2005) and Europe (completion expected end of 2006) are expected to incur near-term inefficiencies but yield long-term cost savings.

Risks and Contingencies:

• Commodity Prices: Volatility in steel prices remains a primary risk to margins.
• Foreign Currency: Fluctuations in exchange rates, particularly the Euro, impact results due to the global nature of operations.
• Restructuring Costs: Delays in implementation or higher-than-expected costs associated with restructuring programs.
• Guarantees: The company holds $196.3 million in guarantees and recourse obligations related to customer financing, though collateral held ($224.3 million) exceeds these obligations.

Investor Verification Checklist

• Inventory Levels: Verify the sustainability of the $57.2 million increase in inventories ($304.9M total) and its impact on future working capital needs.
• Steel Cost Pass-Through: Monitor the effectiveness of recent price increases in offsetting rising steel costs in Q4 2004 and 2005.
• Restructuring Progress: Track the timeline and cost realization of the Americas and Europe manufacturing restructuring programs.
• Debt Covenants: Confirm continued compliance with debt covenants, specifically the minimum excess availability and leverage ratios under the amended revolving credit facility.
• One-Time Items: Adjust financial models to exclude the $6.7 million anti-dumping settlement to assess core operating performance.