Hyster-Yale Materials Handling, Inc.

Thank you. Good morning everyone and thank you for joining us today.

Yesterday, a press release was distributed outlining Hyster-Yale's results for the 2013 third quarter. If anyone has not received a copy of this earnings release or would like a copy of the 10-Q, you may obtain copies of these items on our website at hyster-yale.com.

Our conference call today will be hosted by Al Rankin, Chairman, President and Chief Executive Officer of Hyster-Yale Materials Handling. Also in attendance are Michael Brogan, President and Chief Executive Officer of NACCO Materials Handling Group, and Ken Schilling, Vice President and Chief Financial Officer.

Al will provide an overview of the quarter and then open up the call to your questions.

Before we begin, I would 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.

Additional information regarding these risks and uncertainties was set forth in our earnings release and in our 10-Q.

In addition, certain amounts discussed during this call are considered non-GAAP. The non-GAAP reconciliations of these amounts are included in our 2013 third quarter earnings release, which is available on our website.

I will now turn the call over to Al Rankin. Al?

Good morning. Hyster-Yale Materials Handling had net income of $23.5 million or $1.40 per share and revenues of $144 for the third quarter of this year compared with net income of $24.9 million or $1.48 per share, and revenues of $586 million for the third quarter of last year.

Operating profit increased to $31.3 million for the third quarter, from $28.3 million in the quarter a year ago. The third quarter 2013 effective tax rate was 21.9% compared with an effective tax rate of 14.4% in the year ago third quarter.

The company’s cash position was $184.7 million at the end of September. That was up from $151 million at the end of December and debt as of -- at the end of September decreased to $121.8 million from $142.2 million at the end of December.

Since the inception of the stock repurchase program in November 2012, it permits the repurchase of up to $50 million of the company’s outstanding Class A common stock, Hyster-Yale has purchased approximately 100,000 shares for an aggregate purchase price of $5.2 million, including $3.0 million purchased during the 9 months ended September 30. The company did not repurchased any shares during the third quarter.

In the third quarter, revenues increased compared with the prior year, primarily as a result of increases in unit volumes and other revenues including national account customers maintenance and service revenue, both in the Americas.

In addition, an increase in unit prices and higher part sales, both in the Americas, also favorably affected revenues. Price increases were implemented in the Americas during 2013 mainly to offset the impact of weakness in the Brazilian Real.

A shift in sales to lower priced products in the Americas and Europe as well as unfavorable foreign currency movements partially offset the improvement in revenues. The unfavorable currency movements were the result of the weakening in the Brazilian Real and the Australian dollar against the U.S.

dollar which were somewhat offset by the strengthening of the euro against the U.S. dollar.

Worldwide new unit shipments increased in the third quarter, primarily in the Americas to approximately 21,200 units from shipments of approximately 18,000 units in the year ago quarter and approximately 20,900 units in the second quarter of 2013. Worldwide backlog was approximately 28,400 units at September 30 and that compares with 25,600 a year ago and 29,300 at June 30.

But despite an increase in operating profit net income in the third quarter declined compared with the third quarter of last year as a result of an increase in income tax expense primarily attributable to a higher effective income tax rate in the third quarter, compared with the third quarter a year ago and lower equity earnings with the company’s unconsolidated financing affiliate in 2013 compared with a year ago.

Operating profit for the third quarter improved mainly due to an increase in units and parts volumes and the unfavorable effect -- and the favorable effect of price increases all mainly in the Americas. These improvements were partially offset by a shift in sales mix to lower margin products also primarily in the Americas; and higher selling, general, and administrative expenses.

SG&A expenses increased primarily due to higher estimates for incentive compensation in the third quarter of 2013 compared with the year ago, increased marketing expenses in the Americas and Europe to support the company's 5 strategic programs at a required non-cash charge of $1.2 million pre-tax pertaining to pension settlement accounting for one of the company's US-defined benefit pension plans, which recorded a portion of the deferred loss in equity in the income statement during the third quarter of 2013.

Estimates for the non-cash equity component of incentive compensation increased by $4.3 million during the third quarter, mainly due to the 43% increase in the market price of the company's stock during the quarter.

Looking forward, the global market for forklift trucks is expected to continue to grow moderately in the remainder of this year and in 2014 compared with prior periods. This growth is expected to be driven primarily by increases in the Chinese market, along with steady growth in the Americas as a result of growth in Brazil and continuing recovery in North American demand along with nominal growth in the Asia-Pacific, Middle East, and Africa markets.

The Latin America market weakened during the third quarter and is expected to continue to weaken in the fourth quarter. However, recovery in the Latin American market is anticipated next year.

European markets are expected to remain weak mainly as a result of Western Europe macroeconomic conditions.

In the context of these market conditions and expected increases in market share, the company anticipates an overall increase in unit shipments and parts volumes in the fourth quarter of this year and in 2014, compared with the comparable prior year periods. The majority of this increase is expected to come from the Americas with smaller increases in the European and Asian unit shipments.

The company expects operating profit in the fourth quarter to be up slightly, compared with a year ago.

The expected improvement in gross profit mainly resulting from increased unit volumes, unit prices and improved manufacturing efficiencies is expected to be mostly offset by a shift in mix to lower margin products and an increase in operating expenses primarily as a result of increases in marketing and employee-related costs putting over the course of 2012 and 2013 to support the company's 5 strategic initiatives.

Nevertheless, fourth quarter net income is expected to decline compared to a year ago due to the absence of the $10.7 million valuation allowance release taken in the fourth quarter of 2012 and an expected higher effective income tax rate.

In addition, during the third quarter of 2013, the company elected to prepay $20 million of its term loan financing. Also, the company intends to use cash on hand at September 30 to pay off it’s term loan financing and enter into a new revolving credit agreement in the fourth quarter of 2013, if that financing is available on terms favorable to the company.

If this occurs, the company expects to incur a pre-tax charge of approximately $3 million during the fourth quarter for the write-off of deferred financing fees related to the term loan.

Excluding the anticipated gain on the sale of the Brazil real estate and facility, the company expects moderate improvement in operating profit next year, compared with this year.

The favorable effect of expected increased unit and parts volumes resulting from the company's strategic initiatives, modestly stronger overall markets, continued improvement in manufacturing efficiencies, product enhancements and quality improvements are also expected to contribute to this improvement.

In addition, lower anticipated estimates for equity incentive compensation, which are driven by the market price of the company's stock, are expected to contribute to the improved net income, as the company's stock price during 2014 is expected to be closer to the current market price.

These favorable items are expected to be partially offset by the effects of a shift in mix to lower margin products. A full year impact of marketing and employee cost associated with the strategic initiatives that were put in place gradually during 2013, and unfavorable foreign currency movements in Asia-Pacific.

Despite this improvement in operating profit, the company expects only a slight increase in net income in 2014 compared with this year as a result of a higher effective income tax rate.

The higher effective income tax rates in both the fourth quarter of 2013 and in 2014 are primarily the effect of higher U.S. States, United Kingdom and Australian income taxes in the remainder of this year in year and future years, as a result of the 2012 and 2013 valuation allowance releases, combined with an anticipated shift in income from lower tax rate European operations to higher tax rate Americas operations.

Fourth quarter 2013 and full year 2014 operating profit results are expected to improve in the Americas segment, which includes the North America and Latin America, and Brazil markets. The Europe segment, which includes the Middle East and Africa markets, is expected to increase in the fourth quarter of 2013 over the prior year period and increase slightly in 2014 compared with 2013.

The anticipated weakness of Western European markets is expected to partially offset improvements in other markets and anticipated benefits of the current strength of the euro in the 2014 Europe segment results. Asia-Pacific results for the remainder of this year and in 2014 are also expected to be lower.

Cash flow before financing in 2013 is expected to be significant but declined compared with a year ago. The company anticipates an increase in capital expenditures in 2013 largely due to information technology enhancements in Brazil.

Cash flow before financing activities for 2014 is expected to decrease from 2013 also primarily due to an increase in the capital expenditures for the construction of a new plant in Brazil.

These capital expenditures will be mitigated by the final cash payment received when the sale of the current facility is final which is expected to occur in mid-2014. The company remains focused on gaining market share over time as well as on improving margins on new lift truck units, especially its internal combustion engine business through the execution of its 5 strategic initiatives.

The first is, understanding the customer needs at the product and aftermarket levels in order to create and provide a full range of differentiated product and service solutions for specific industry applications.

The second, to offer the lowest cost of ownership by utilizing the company’s understanding of customers' major cost drivers and developing solutions at consistently lower cost of ownership and create a differentiated competitive position.

Third, improving the company’s warehouse market position through enhancing dealer and customer support, adding products, increasing incentives and implementing programs to increase focus on key customers.

Fourth, enhancing independent distribution by implementing programs aimed at broadening coverage of the market, expanding the company’s dual-brand ownership strategy, and ensuring dealer excellence in all areas of the world.

And 5, expanding in Asian markets by offering products aimed at the needs of these markets, enhancing distribution excellence and focusing on strategic alliances with local partners in China, India and Japan.

To meet the specific application needs of its customers, the company is focusing on developing utility standard and premium products. And to this end, the company has development programs underway for its electric wire warehouse, internal combustion engine and big truck product lines.

To support its warehouse growth initiative, the company is in the process of launching significant changes to its Americas product line including its reach truck, 3-wheel stand, order selector and the center rider and toe tractor lift truck models.

These changes are focused on improving ergonomics, productivity and lowering cost of operation. In addition, in early October of this year, the company introduced a new reach truck predominantly for the European warehouse market to dealers at 3 simultaneous live European locations and virtually at all at other locations in the Americas and Asia-Pacific regions.

This product is expected to go in production in January of next year. In mid-2011, the company introduced into certain Latin American markets, a UTILEV-branded 1- to 3.5-ton internal combustion engine, pneumatic tire lift truck model to meet the needs of lower intensity users.

This UTILEV-branded utility truck was gradually introduced into global markets during 2012. During the third quarter of 2013, the company expanded the UTILEV-branded series of lift trucks by introducing a 1- to 3-ton internal combustion engine cushion tired truck in North America and a 3-wheel electric rider truck globally.

The UTILEV-branded series of lift trucks is expected to continue to gain market position in the remainder of this year and in 2014. The company offers one model of the standard internal combustion engine lift truck for medium duty applications in both pneumatic and cushion tires for both Hyster and Yale.

The company expects to launch additional trucks in the standard model series in future years.

That completes our third quarter prepared update for Hyster-Yale Materials Handling and I’d be happy to turn to questions that any of you may have now.

Al, just some questions on your 2014 outlook, as I understand it, your revenue outlook calls for a moderate increase in unit shipments. But mix is viewed as a continued headwind.

So I'm trying to understand, does this could potentially mean that we might not actually see a revenue increase next year in spite of growth in shipped units?

Well, I think, we are just saying that, whatever revenue increase there maybe would be moderated by an adverse shift in mix, and I think that’s probably the best way to think about it. I would anticipate that there will be an increase in revenues, but that mix will not be perhaps as rich as it might otherwise be the case.

Okay, okay that is helpful. And sticking with this mix idea, if we are looking at 20,000 units booked in the quarter and we compare them with, say, 19,400 units from a year ago, I am wondering, what sort of difference in ASP are we looking at now versus a year ago in bookings?

What, what difference? I didn’t pick that up.

In average selling price or how does the mix in bookings actually look on a year-over-year basis to kind of frame expectations maybe, going forward to some extent?

Well, I think the best way to do it is, to just note that, we sell lift trucks that sell at very different prices, that there are units that can go up into the hundreds of thousands of dollars and other units that are well below $20,000.

And it’s really the distribution of those units and the individual markets and the volumes that we capture that has an influence on -- as far as the selling side is concerned and some of those have differing margins as well. Michael, do you have anything you want to add to that?

I’d say that we are also growing our business in Class 3 as part of our strategic initiatives in warehousing and there is a -- I would say a higher weighting or preponderance of a mix of lower value but higher volume products in Class 3.

Okay, I understand the color directionally, but you can't really share with us some sort of numbers to get a sense on a year-over-year basis as to what that impact was from a booking standpoint?

No, I think, the only thing that we would put in are just the comments that we have in the Q and we wouldn’t elaborate beyond those and those would be available to you right away.

Okay, then, if we can talk a little bit about the market as a whole, you mentioned continuing recovery in North America and I'm wondering exactly what that means. So if we look at the last, say, 12 months, industry shipments may be they are just about 200,000, maybe a little bit below that in North America.

What sort of industry shipment levels do you foresee for 2014? What kind of growth in overall shipments in North America?

Well, I think we indicated that we do see a further strengthening of the market in 2014 for the full year. And I think we are not going to quantify those numbers, but it’s going to be modest, very modest increase the way we are forecasting it.

Now, we have to be -- that was really relatively flat for the Americas overall.

In North America, again, relatively flat, but I think, the economy directionally is moving up, but at a very modest pace and we continue to be -- from a forecasting point of view, we want to be on the conservative side as we plan our volumes and for next year. And on the other hand, we don’t see signs that things are going to change significantly given that the patterns from the quarters that we are seeing.

Michael, would you add anything to that?

No, I’d say, I think we see some modest growth in North America in particular, flat in Europe, particularly weaker Western Europe, but stronger Middle East and Africa and Eastern Europe. But as you said, Al, I think we see perhaps similar growth rates that we are seeing this year.

Well, we have seen 3 pretty decent growth rates this year. That is why am thinking, is it fair to extrapolate that going forward?

Well, it’s not the way we are looking at it, that’s all I can tell you at this point. We don’t see that the economy is picking up rapidly at this point.

We see it very moderate and we’ve been moving up as you point out over the course of 2011 to 2012.

There was a pretty moderate -- modest increase in that period in the Americas and then it went up a little bit more in the next year, but there haven’t been huge increases in the markets in the last couple of years. This is a moderate growth situation.

Okay, and I have to go back kind of to this mix comment that you made earlier. Just on the margin side, I'm trying to understand if when you're talking about mix to lower-margin products that means a higher percentage of sales being a warehouse product?

Or if we are talking about UTILEV also may be seeing growth and potentially impacting overall mix?

I don’t think there is a big impact from UTILEV and in addition, since that’s a sourced product, the margins affect the P&L in a little bit different fashion, and it’s a perfectly profitable product from our point of view at the operating profit level.

The gross profit contribution is a little bit lower, but I don’t think that’s going to be the major mover. I think that, Michael outlined the items that are and then I would just note that it’s also influenced by the amount of big trucks and heavier internal combustion engine trucks, which are attractive, profitable market.

So that comes into the play of mix as opposed to some of the bigger runners in terms of volume in the internal combustion engine line as well as the warehouse product point that Michael is making.

I see, that is helpful. And the last question for me is on your outlook for Asia Pac.

It is a pretty subdued outlook. You expect maybe continued contraction there, yet you've kind of noticed that -- noted that China is doing okay and I do know that that has been part of your 5-point strategy improving results in Asia.

So what is really going on in that geography?

We have a joint venture in Japan and with the yen at current rates, that business is positioned to do better as we look forward. We have a very small position in China.

So, as a practical matter it’s not going to have a big influence on the results. We include in our Asia initiative not just the volumes in Asia, but also the establishment of relationships with the partners, whether they are in Japan, China, or India that can have an -- help provide products for the rest of the world and components.

And then as to volumes in Asia and in the Pacific area, I just note that they can be heavily influenced by the mix of big trucks. We have a substantial position in the big truck business and those are less predictable volumes than in some of the other areas.

And, the currencies can have a big influence on our situation.

So that the relative values of the yen, the dollar and the Australian dollar can have a big impact and when have to put price increases in place, it can be difficult to maintain the margin structure that we might have had earlier.

So all of those are factors that are at work in Asia and at this point, we are really focused on a longer term program of building our distribution position of providing a broader line of UTILEV trucks which we think are particularly suited to the customer needs in, particularly, the Asian markets and it’s going to take some time, some years for those programs to fully play out. Michael, do you want to add anything to that?

I’d just say, Al, that we are investing in sales efforts in Asia, established a new marketing headquarters in Malaysia to attack the Asian market in general. We’ve appointed new dealers and then we have established a major accounts effort.

So, as you said, it will take a while, but we are investing for the future in that particular theater.

A couple questions. I guess, one point is, if the stock keeps going lower, you’ll be able to reverse out some of that stock incentive compensation in the fourth quarter.

You understand the dynamics of that equation fairly well, [indiscernible] take money.

Let's hope not. You mentioned in the text that Brazil was going to be a little weaker in the fourth quarter, but you are hoping Latin America would be stronger in 2014.

What sort of gives you that optimism a little bit more strength as we go into 2014?

Well, I think it’s just our assessment of kind of on a country-by-country basis in Latin America that things could get stronger next year. The volumes are moderating up in the scheme of things that’s not a huge influence, but we do see that individual countries are turning up now.

So we think about Brazil, separately. As you probably know, economic conditions are a bit uncertain in Brazil.

We had a nice increase in the market in 2013 compared to 2012. On the other hand, it looks to us as though we are getting the volumes that are likely to be fairly stable, but at a higher level.

I think that’s the way, I’d put it in those -- for those countries.

Okay and the new Brazilian facility will open, when?

Michael, what’s our best thinking?

I’d say, end of 2014, end of next year.

End of next year, okay. And obviously, it is a ways away, but as you look at 2015 in terms of the Brazilian operations, are you looking at a significant improvement in, let's say, the operating margins down there then?

Just on the...

I think the way I’d put it is, that we expect to be able to add products to the manufacturing capabilities that we have in Brazil. I think that, we put in a new information technology system which is now in the process of being fully implemented in this fourth quarter and between the information technology systems and the new facility, I think we will be more efficient.

The current plan is in the city of Sao Paulo and it is a very difficult operating environment.

On the other hand, I think it’s really going to be the volume we put through that facility that will make the larger difference and there may be opportunities in the future to use that facility to serve markets other than the Brazilian market. And we are actively looking at that possibility as well.

So, we see it as a real contributor to the future strength that we have in South and Latin American markets.

Okay, one last question, Al. It looks like you want to refinance your debt.

Can you give us -- bring me up to date on what your cost of the debt is now, and what you think it might go to should you consummate a refinancing program?

Well, I think we do had every expectation that we will be refinancing as you suggest. And Ken, do you want to address the cost a little bit?

Yes, on the current balance with 400 basis points over a LIBOR and with a 1% LIBOR floor that facility currently pays 5%. So our interest cost.

So, clearly believe that the refinancing market will provide us with an opportunity to lower that rate for the borrowings that we need.

Okay, Ken and Al, is that expectation built into your bottom-line guidance for 2014?

I’d say that, the one thing I would note is that, as a practical matter, we will be shifting the nature of our financings to -- so that, we will be borrowing as we need to have borrowings.

And so, our borrowings will be pretty low and we will use the cash in the short-term and we will have a revolver available. So, the real impact in the short-term is that interest costs are going to go down and of course as you know, you don’t make much money on the cash right now.

Ken, do you have anything you want to add to that?

No, I think that’s straight on how we would see it working, and we have included our expected refinancing in our forward number.

Okay, okay. So it sounds like you are not going to give us a $2 dividend this year at year-end, special dividend?

We have a regular dividend in place and we would expect that the board will look at dividends and consider our options, but, that was indeed a special dividend, that was really related to the whole [indiscernible] that we saw as we spun-off the business.

I just wanted to sort of just clarify one thing in terms of your sort of top-line expectations for next year, as well as sort of the product mix. So, if I understand correctly, is it more so sort of the case in point with all these products that you're introducing that maybe carry a little lower margin than company average, revenue being increased due to those new products.

And as a result, the product mix is lower. So your top-line necessarily can continue to grow.

However, the product mix, because of some of these new products, the margin may be weighed on a little bit. Is that fair?

I think that’s probably the right way to think about it and I do think that, we are not talking about huge changes in the gross profit expectations that -- and as we indicate there are some things that go on in the SG&A, as we have more or less completed -- will have completed ramping up to -- for the support of the 5 strategic programs by the end of this year. So, I don’t want to get too focused on the mix issue, because, we continue to think that we are going to be doing pretty well in terms of our profitability, but we do, we just did want to flag that.

Okay, that's helpful. I just wanted to clarify that.

And then, that brings me to my second question. In terms of these investments in the marketing costs and such, have they started already?

And sort of I don't know if you can quantify or just give us an idea of how large these costs will be, and how temporary or I guess, how long they are budgeted for?

Well, actually the way I think you should think about them is less as one-time costs and more strengthening our capabilities especially in the sales and marketing areas. These are not costs of magnitude other than in our SG&A that is related to sales and marketing.

And so, we are strengthening the capabilities for account identification, we are strengthening our capabilities for coverage of the market for developing industry strategies and a whole -- and a series of things that we think really are critical to the share gain programs we have in place. As you know, we have a program in the warehouse business.

That involves adding technical people and capabilities. And so, most of this is to strengthen the infrastructure and it’s kind of a permanent cost.

And then we expect to get volume in due course that more than compensates for that permanent cost.

And to be able to operate with this level of SG&A as we step up the volume both on market growth over the next few years which is what we anticipate, and particularly, share growth that comes from the execution of these programs. Michael, do you want to add anything to that?

No, Al, I think that really cover this.

So, I guess as a follow-up, just related to these investments and the products that you have introduced, the things have been in place for a little bit, but it's still early. I'm just wondering if you can give us an idea of when your expectation does the market share starts coming.

Do you start to see a little bit next year, and then it accelerates into 2015 or is it more '15? How are you looking at the attack of market share through these investments, and the products, and such?

Well, actually, I’d say that the progression has been in place. It’s not hugely dramatic, but certainly, we’ve seen some improvement in '11 to '12 in most areas, from '12 to '13 of some significance on a global basis and in the Americas, in particular.

And so I think the way we would see it is part of a progression that goes on beginning significantly this year compared to '12 and improvement, a further improvement in '14 and then further improvements in '15, '16 and '17.

We don’t see the share improvements being hugely dramatic in any 1 year or everything coming together, if you go with a big bang, what we see is, the opportunity to have those capabilities that we are putting in place that I just described. I have on an increasing cumulative impact and keep moving our share up notch-by-notch each year as we look forward.

So in terms of the products, where do you see the product portfolio right now? Are you sort of halfway there in terms of getting to that portfolio that you ideally think of -- that you are trying to introduce the standard and utility type products?

Where are we in that resetting of the portfolio?

Michael, do you want to take that one?

Yes, I think, we are very advanced I would say. Really, on our premium products, warehousing products we’ve just introduced a couple of new products.

I would say, we are well over 50% in terms of warehouse products. And then as we said in the press release, we are introducing more standard products and some utility products to fill out the range.

So, I would say, by '15, we will be very close to complete. Although you are never complete because there is always an upgrade or programs required to keep it fresh.

I think, on our utility product line, we made an awful lot of progress and the capabilities we’ve put in place will be -- I’d say, Michael on the margin and in the standard product line, we have a more significant task ahead of us to expand from the rather narrow offering that we have today. And as Michael suggests, that’s really aimed for 2015 and there, I think, Michael, it's more toward the end of 2015, isn’t?

I would say so, Al, yes.

So, that’s probably the biggest area. I think in the case of the warehousing products, it’s much more sort of incremental, we offer products, but we are also improving them and particularly bringing down the cost of operations and improving the productivity and ergonomics of those machines.

So I think that gives you an overview.

Okay, and then just last question, in terms of the -- your one strategy in terms of entering into Asia, China is the biggest part of the market over there. I'm just wondering if you could update me or clarify sort of the way you're thinking about China versus the rest of Asia?

Well, I think the first thing to note is, we think of China as having, if you will, 2 rather different marketplaces. One of them is for standard and premium trucks at the type that are sold in western markets.

And that is the market that we participate in most actively and aggressively. And we have a reasonable, if small in the scheme of things, share of that market.

Then secondly, there is a utility or even less than utility market, which is very, very large. And we are not a significant participant in that portion of the market and we are really focused on the higher end of that market and therefore we have a low share overall, but an acceptable share in the segment that we choose to participate in.

And really, western companies like ours, whether it’s Linde or others are really focused on that higher end portion of the marketplace. And it’s the Chinese companies that dominate the other segment of the market.

So, we think that, that’s where the profitability will be that the other portions of the market will be constrained from a profitability point of view. There are a lot of competitors.

That’s kind of the way I would summarize it. Michael, do you want add anything to that?

No, exactly right, Al, I think the dominant part of the market is the utility served by the indigenous manufacturers. We play in the smaller segment of the premium market standard with the other Western manufacturers, indeed, the Japanese.

But it’s a higher margin part of the market and also one that Japan has got higher levels of service which we provide to Western companies that come into China, we don’t really play in the utility market in China.

I wanted to go back and touch on the long-term margin targets you guys had initially laid out upon the genesis of the company. Can you talk a little bit about how those may or may not be impacted by some of the margin comments today?

Well, I think, the most important thing to keep in mind is, that if you go back and look at our comments, we had 2 sources of margin improvement that would get us to our targets.

The big driver is additional volume and that comes from a combination of market growth and market share improvement and as we said at the time, we have a substantial capacity available to permit us to increase our volumes sold quite dramatically without having to add significant additional capital expenditure and capacity expenditure.

And of course, it leverages not only the capacity utilization and the unabsorbed burden variances that exists from our manufacturing plants, but it also leverages over the GS&A expenditures that we have. So, all that extra volume drops a higher proportion to the bottom-line and therefore improves the operating profit percentage.

The second source which is a more modest source is, the improvement in our internal combustion engine margin performance. That will come as the products that Michael and I described earlier come into the marketplace.

So, in particular the standard products that will be added to the product line in 2015 should have a significant impact on improving our margins in the internal combustion line so that they are more in line with the targets that we set. So, those are the 2 forces that are at work that generate the improved operating profit margins, and nothing that we have said today has any significant impact on those drivers at all.

It’s all -- they're minor comments in the scheme of those big drivers that I just described to you, and I wouldn’t change our comments at all from the earlier time.

So in the context of today's kind of sales base of call it $2.5 billion or so, where do you think your operating margins should be as all this kind of sorts itself out?

Well, we’ve said that our target is to have a 7% operating profit margin at the midpoint of the cycle. And the way I would see it playing out is, as we move toward the peak of this cycle, I would certainly hope we could move up to those kinds of levels and then be very well positioned to be at the mid-point of the next cycle at those levels,

And then, at the peak of the next cycle, be in a position to have a higher operating profit percentages. So, it’s really highly dependent however on the high levels of capacity utilization that I just described a bit earlier.

And the timing of that 7% target on today's sales base, it looks like what?

Well, I don’t think we said anything other than over the next 5 years including 2013, that we believe that we are on track to achieve those kinds of results through the improvements of markets and through market growth and through our share increase programs. And, so far, we think we are on track, but it’s still early days yet, and I was asked earlier about market share improvements and said that we see those coming not in a great burst but cumulatively over time and it's that volume increase that will cause our operating profit levels to improve as we move forward.

Now, we have put additional cost in place over the course of the near term and late '12, '13 in particular and annualized in '14 in order to ensure that those 5 strategic initiatives come to pass. And so that's really the way I would leave it.

And then one last question, I mean, you guys have a good amount of net cash on the balance sheet. It looks like you are trying to rework your bank lines.

I mean, what’s kind of the bigger end game with respect to this excess capital that seems to be sitting in the company?

Well, there are opportunities to -- we will be thinking about the potential uses. In the meantime, we think that refinancing our debt is going to be the wisest thing.

We have a share repurchase program in place. Really, our thinking has not gone beyond those factors at this point in time.

I just had a question on your prepared statement related to the cash flow, therefore financing activities. You are saying that the cash flow in 2012, free cash flow effectively is going to be lower than 2012, which suggests that you're going to be generating less than $34 million in the fourth quarter before financing activities.

I suspect that, is there going to be a big hike in the capital expenditure in the fourth quarter? And Also, could you maybe explain and give some color on the capital expenditure numbers for the coming year, because, again, you say that cash flow before financing activities is actually going to be down on 2013.

So, maybe you can give us some color on that.

Well, I think, first with regard to capital expenditures. We originally had anticipated that capital expenditures in 2013 would be above or sort of norm levels.

And in fact, that is not going to be the case. They would be very much in line with our traditional levels.

And, there will be a bump in capital expenditure in the fourth quarter or at least I think that’s typically what we see the capital expenditures tend to be pushed towards the end of the year in certain cases that might have been planned for earlier in the year.

In any event, the reason that '13 is lower is that we had anticipated that we would have been moving forward with the construction project on the Brazil plant in 2013. Now that construction expenditure is really going to be a 2014 expenditure.

So, we see the capital expenditures going up in significantly next year related to -- particularly related to the Brazil facility.

Then with regard to the cash flow before financing, hello?

Yes, yes.

There is some noise on the phone there. The cash flow before financing, we see as being really very -- at very robust levels in 2013.

So, we feel very good about the overall situation and it is down from last year but frankly, those numbers can move around between the end of year positioning of payables, receivables and inventory. And so, it’s a little tough to forecast that with greater precision.

Next year, at least at the moment, we are looking for cash flow before financing to be down, but it’s really entirely related to the CapEx situation and particularly the Brazil that I just mentioned earlier. Ken, do you want to add anything to that?

I think, that’s -- on a year-to-date we are beating '12 pretty handily. Cash provided by operating activities were up $20 million.

Obviously, on the CapEx spend where we’ve spent more in '13 year-to-date than we have in '12, but we do have the partial payment on the sale of the Brazilian facility, $9.9 million of that’s recorded in these numbers today.

We receive the remainder of the cash next year. So, some of the cash on the Brazil project got pull forward because we received the first installment, while a good deal of the expenditures were moved back into '14 that we expect in '13.

I don’t know if that helped additionally.

Okay, good. And just one more question.

When you talked about your targets for margin, you talked about mid-cycle targets of 7%, operating margins of 7% over 3 to 5 years. Before -- has your view on the macro conditions for your business changed at all in the last year since before the spin-off?

And have they moderated or have they remained more or less the same?

Just let me clarify, your question was, has our view of the market conditions changed, is that?

Yes, in terms of the timeline for achieving your margins, because obviously, you have emphasized that the key is the additional volume you will be able to produce in your current factories. And I was just wondering whether you actually...

Yes, I don’t think that we are really in any significant way changing our perspective on markets, it’s one of market growth through the next few years, as we plateau in this cycle. I think, in the very short term, the weakness in Western Europe is probably greater than we anticipated earlier on.

But again, we think this is more of a temporary phenomenon and in due course, those markets will come back. But nothing has fundamentally changed our perspective on what we can accomplish with the 5 strategic programs and with the general growth of markets.

And in fact, I think from our point of view, we are quite comfortable and would much prefer to be in a position where we were focused on very modest to moderate growth in the markets and we are focused on bringing value to our customers and potential customers in a way that allows us to gain share rather than have a market grow rapidly and then a sharper downturn. So, it’s a combination that we feel pretty good about really at this point.

And just one addendum to that, you mentioned that now you think you could achieve 7% peak sales -- 7% margin on peak sales. Now, in the last cycle I think your peak sales ran around $2.8 billion, if I am -- sort of not -- correct -- if I'm correct on that.

Do you think given the sort of way that your strategy in terms of product mix and pricing going forward, do you think the next peak could actually surpass that sort of peak level?

Well, I think, it’s really going to be the not so much pricing and so on. It’s really the unit volumes, and yes, we do see unit volumes that are higher than the unit volumes at the peak of the last cycle.

So, and it’s some combination of market growth to levels that are comparable to the last cycle, plus or in certain areas, obviously China is well above that. And then, the share gain programs that generate the greater volume for us.

I just had one quick follow-up question. In terms of the stock comp, it looks like you are going to surpass $10 million this year, potentially.

I was just wondering how can we think about more of a normalized stock comp expense.

And then, also, given the increased, just overall costs, where do you think the quarterly SG&A goes to? We were at $80 million this quarter; where do you think that goes to?

Well, I think we said in our release that we had a $4.3 million incentive compensation increase that was driven -- in the third quarter, driven mainly by the 43% increase in the market price of the company’s stock.

So, I mean, that was a very large number. It’s related to -- it’s a non-cash number, I would also point out and the number of shares doesn’t vary, but the price causes the number of shares to be charged to the income statement of that same number to be a higher number.

So, I think what you can do is, think about that $4.3 million as a somewhat unusual charge in the third quarter. That gives you then a better sense of the running rate that we are operating at in GS&A as you look forward.

I’d kind of leave it at that.

And what about the additional marketing costs and such? Are we going to see the SG&A ramp up from the $80 million that we saw this quarter, or is that sort of a run rate?

Well, I think there will be some expenses that are going to be coming in the later part of this year and the early part of next year. What I would say is, if those expenses are really associated with the conceptual plans that we already have in place in terms of strengthening certain sales and marketing activities.

But I do think that there will be some increases as we look forward, and I would guess we will have more to say about that as we come to the fourth quarter earnings release and deal in a bit more detail with 2014.

But, I think, you’ve got the gist of what we believe is the case overall on the overall impact in terms of our comments on 2014 and the way that operating profits improve on higher volumes, but they are offset by increases in GS&A to some degree.

Okay, well, thank you very much everyone. We really appreciate your questions and participation in the review of Hyster-Yale’s third quarter earnings release and Christie, you want to close up?

Sure, thank you for joining us today. We do appreciate your interest and if you have any additional questions, please feel free to give me a call.

My number is (440) 229-5168. Thanks.

Okay, thank you all very much.