JLG and Caterpillar Announce Global Telehandler Alliance

October 27, 2005 — Caterpillar, Peoria, Ill., announced that it has signed a definitive agreement to enter into a global alliance with JLG Industries, in which JLG will design and produce a full CAT-branded telehandler product line exclusively for Caterpillar dealers. The deal is expected to close prior to the end of the year, subject to consultation with employees and their representatives.

Caterpillar's telehandler products are currently produced at the company's Building Construction Products Division (BCP) plant in Leicester, England, along with four other machine product groups. Under the terms of the 20-year strategic alliance agreement, JLG will develop and manufacture for Caterpillar a line-up of CAT-branded telehandlers for global distribution. JLG will support these telehandlers in the North American and Latin American markets from its McConnellsburg, Pa., facility, and the markets in Europe and the rest of the world from its Maasmechelen, Belgium, facility.

According to Caterpillar, the company will retain responsibility, including warranty and service, for the B-Series telehandlers and earlier models until the third quarter of 2006; an exact date is undetermined at this time. Following that, JLG will assume responsibility for manufacturing the new line of CAT-branded telehandlers to replace the TH350B through TH580B models, sourced from JLG's operations in McConnellsburg. The TH220B and TH330B will continue to be available in North America, sourced from JLG's facility in Belgium. The TH210 and TH215 telehandlers are being considered for Europe/Asia/Middle East, but initially will not be available in North America. An alternative offering will be considered in the future.
As telehandler production is shifted from Caterpillar's Leicester operations to the JLG facilities, BCP's European operations will undergo a strategic restructuring to better position the manufacturing of its four other product groups consisting of backhoe loaders, small wheel loaders, compact wheel loaders and mini hydraulic excavators. Caterpillar will continue production of these existing machines at Leicester.

Alongside the supply agreement, JLG has signed definitive agreements with Caterpillar to acquire certain equipment, tooling, and intellectual property of its telehandler group. The purchase price for Caterpillar's telehandler assets is $51.4 million, with $46.4 million paid at closing and $5 million upon transition of CAT-branded telehandler sales to JLG, currently anticipated to be approximately 12 months from now. In addition, JLG expects to invest an additional $30 million during the transition period (Fiscal Year 2006) for the development of the North American Caterpillar product line and for capacity improvements in both Belgium and Pennsylvania to accommodate the additional volume. Of this amount, approximately $14 million will be capitalized and $16 million will be expensed.

"Based on current forecasts, sales in the first full year of production are expected to be in the range of $325 to $350 million and the program is projected to pass our targets of a 15 percent return on invested capital and less than four times invested capital to EBITDA during the second full year of production,” stated Jim Woodward, JLG's executive vice president and chief financial officer. “As a result of this transaction and an updated review of our current forecast, we reaffirm fiscal 2006 sales are expected to increase between 15 and 20 percent, and earnings per diluted share are anticipated to be in the $1.95 to $2.05 range."