Landed Cost Calculation - Transportation and

Importation (T&I) Factor - August 11, 2006

This procedure explains the calculation methodology, responsibilities and reporting
requirements to the Distribution Services Divisions in the Americas, EAME and APD
Parts Operations Organizations on calculating dealer’s landed cost for parts procured
from Caterpillar.

A. Definition

A dealer’s parts landed cost (T & I) factor as defined by Parts Operations should
cover costs incurred with, and directly related to, the importation of regular stock
replenishment for a dealer’s parts inventory.

These costs should cover expenses by surface transportation from the regular
Caterpillar Parts Distribution Center assigned to the dealer main store or re-
distribution facility. If a dealer procures stock by air from Caterpillar on a regular
basis, a separate analysis is required to establish a reasonable average air / surface
landed cost.

B. Analysis

The following cost items are acceptable for inclusion in landed cost calculation:
1. Parts at Dealer Net price
2. Import Charges
3. Freight and Insurance
4. Forwarding Fees, Port Fees
5. Duty, Stamp Duty
6. Clearance Fees, Consular Fees
7. Import Tax, Goods & Services Tax (if applicable)
8. Inland Transportation from port to dealer main branch store

Items to be excluded from the landed cost calculation are expenses classified as
“Direct Expenses”. These include such items as emergency services charges,
backorder charges, buying commissions, financial charges, internal transportation
between main store and branches.

The daily Stock Ordering charge applicable for certain dealers is a discretionary
service, and as such, must be excluded from all T&I calculations.

The analysis should be based on the average landed cost for each Main Store for
at least the last 8 months prior to review date.

C. Responsibility
 The Distribution Office / Parts Representative is responsible to conduct an annual
analysis with their dealers to review and verify the dealer submitted data, and
endorse the final parts landed cost factor.

The local DSD Parts Operations Team is responsible to ensure the annual analysis
is carried out by the Distribution Office. Otherwise email will be sent as a
reminder.

The local DSD Parts Operations Team verifies the data to ensure it is in
compliance with this T&I factor procedure.

The local DSD Parts Operations Team announces the new T&I factor to the
dealer with copies to the Distribution Manager, Parts Representative and
Enterprise Warranty.

D. Frequency

The frequency of T&I review should be performed a minimum of once a year or

whenever significant fluctuations of exchange rate, custom duties or in-country
traffic cost structure.

E. T&I Calculation and Setup in the Cat Service Claims Warranty System

Depending on the dealer’s parts operation, it is required for the dealer to calculate
the T&I rate for each main stock order branch separately. All non-stock order
branches or service depots will use the T&I rate based on their distribution
branches. In order to have the right setup within the Cat Service Claims Warranty
System, the chart of dealer territorial or distribution hierarchy (available in DBS)
needs to be submitted to Global Warranty.

There are two methods whereby the dealer can choose to consolidate the parts
stock order data to calculate a new T&I rate.

Method 1:
The analysis will be based on actual shipments to calculate the weighted average
landed cost for each main store. The data should cover at least TEN RECENT
STOCK ORDER SHIPMENTS ideally, spread over the review period. Form in
attachment B should be used to help with the calculation of each main stock order
store.

Method 2:
The analysis will be based on dealer’s finance department consolidation of parts
stock orders for each main store. The data should cover at least the last 8 months
of stock order shipments. Form in Attachment B should be used for the
calculation of each main stock order store. When dealers choose to use Method 2
for the T&I calculation, all account numbers and names should be indicated on
 the form. The type of Account transaction should be explained on a separate
page. Dealers also need to prepare at least one stock order shipment per main
store and fill up the form in Attachment A will all relevant invoices.

Dealers need to consolidate all separate analysis worksheets into the Parts Landed
Cost Analysis Summary as in the Attachment C.

Dealer Finance Managers or Parts Managers should review and confirm the
validity of the analyzed data and sign on this summary form.

F. Documentation and Audit

Dealers should make a folder to collect all supporting documents, such as the
copies of parts, sea freight, forwarding, duty, inland transportation invoices, etc.,
in the analysis for Distribution Office review. The folder is required to be kept
for 12 months and should be made available to Caterpillar upon request for
auditing purposes. Caterpillar reserves the right to perform audit reviews as
appropriate to ensure the accuracy of the calculated landed cost factor. A change
of more than 5% in the new T&I rate would be a benchmark for the audit. In
addition, any discrepancies found during the audit may result in the dealer
requiring a refunding payment that Caterpillar may have made due to incorrect
landed cost calculation from the last rate update. The audit can be conducted by
either or combine force of the Distribution Rep, Cat Finance Rep, Enterprise
Warranty, Cat Internal Auditing or invited external Auditor or Finance Form.

Approved By: ________________________________

(Parts Operations Manager / Administrator)

Date: ______________________
ATTACHMENT A

PARTS LANDED COST ANALYSIS

(U.S. DOLLARS)
Dealer Code: __________
Review Date:
___________________
Dealer Name: ____________________________________________________ Parts Invoice Period: ____________

Costing Components : Average cost for each Main Store for at least the last 8 months prior to review date.

Dealer Parts at Import Freight Forwarding Duty Clearance Import Inland Landing
Main Dealer Charges and Fees/Port Charges Fess/Consular Tax / Transport from Cost %
Store Net Insurance Fees Fees GST port to main
store only
ATTACHMENT B

PARTS LANDED COST ANALYSIS by MAIN STORE

(U.S. DOLLARS)
Dealer Code: __________
Main Store
___________________
Dealer Name: ____________________________________________________

Costing Components : Average cost for each Main Store for at least the last 8 months prior to review date.

T&I Factors Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Average
Parts at US Dealer Net
Import Charges
Freight & Insurance
Forwarding Fees/Port Fees
Duty Charges
Clearance Fees/Consular Fees
Import Tax / GST
Inland Transport from Port to Main
store only
Total Landing Cost

Note: 1) One table per Main Store of Import provided in spreadsheet format
 2) Average calculation in final column use formula =AVERAGE(cell range)
3) Template available from Warranty Website

ATTACHMENT C

PARTS LANDED COST ANALYSIS SUMMARY (U.S. DOLLARS)

Dealer Code: Dealer Name: Period:

Forwarding Clearance Inland Transport

Parts at Import Freight and Fees/Port Fees/Consular Import Tax / from port to main Landing Cost
Dealer Main Store Dealer Net Charges Insurance Fees Duty Charges Fees GST store only %

Finance Manager: Parts Manager:

Name Signature Date Name Signature Date

CAT District Manager: CAT Parts Rep:

Name Signature Date Name Signature Date