CATERPILLAR REMANUFACTURED PRODUCTS CORE ATTRITION POLICY AND ENTITLEMENT REINSTATEMENT/ATTRITION DATE EXTENSION GUIDELINE Caterpillar

CATERPILLAR? REMANUFACTURED PRODUCTS

CORE ATTRITION POLICY AND ENTITLEMENT

REINSTATEMENT/ATTRITION DATE EXTENSION

GUIDELINE

Caterpillar has a Core Attrition Policy for all Reman Products sold through all Marketing

Organizations. This means that in order for a dealer to receive a core credit for the Reman

products purchased, all Reman products must be returned within a specified time period.

This applies to Reman worn cores and to Reman parts inventory. Major Components have a

different time period from all other Reman products. In addition, this policy is administered

using FIFO (First In First Out) accounting in the issuance of core credits for Core Credit

Requests (CCR?s) ; core credits for reman surplus returns (PRA?s); and in the attritioning of

outstanding entitlements, starting with each dealer?s conversion to CMIS 2.

Below is a description of the Core Attrition Time Periods, a Policy Description, and related

Entitlement Reinstatement/Attrition Date Extension Guideline.

Marketing Organization Core Attrition Time Periods

 North America Commercial Division (NACD) Policy (effective July 16, 2001)

 The NACD Core Attrition Policy was effective July 16, 2001 and established a 455-day time

period for all Reman products excluding Major Components. The current Major

Component policy was effective January 1, 1998 and established a 180-day time period

Latin America Commercial Division (LACD) Policy (effective June 30, 2002 and January

1, 2003)

The LACD Core Attrition Transition Policy was effective June 30, 2002 through December

31, 2002 and established a 548-day time period. Effective January 1, 2003, a 455 day time

period will be established for all Reman products excluding Major Components. The

current Major Component policy was effective January 1, 1998 and established a 210-

day time period.

Asia Pacific Division (APD) Policy (effective May 31, 2002)

 The APD Core Attrition Policy was effective May 31, 2002 and established a 455-day time

period for Australian dealers and a 548-day time period for all other Asia Pacific dealers, and

includes New Zealand, Papua New Guinea, Samoa, and other Pacific Island dealers. The

current Major Component Policy was effective January 1, 1998 and established a 240-

day time period (or 210 days for the Australian area).

Europe, Africa, Middle East (EAME) Policy (effective January 1, 2003)

 The EAME Core Attrition Policy, effective January 1, 2003 establishes a 455-day time

period for all Reman products excluding Major Components. This policy is effective with

each dealer?s conversion to CMIS 2. The current Major Component policy was effective

January 1, 1998 and established a 210-day time period (or 240 days for the CIS

territory).

Caterpillar Remanufactured Products Core Attrition Policy

 Dealers will receive up to 100% core credit for core returns of Reman parts returned through

the defined time period with no core reinstatement or credit after this period.

Any entitlement that has been attritioned by Caterpillar affecting a dealer?s surplus return

(Parts Return Authorization (PRA)) of new Reman parts (excluding major components, See

IRM REM02-32 or PELE0937) will be automatically reinstated and credited up to 100%

(See IRM REM02-38 or PELE0943). The process will look back up to 24 months from the

final credit issuance date to open an attritioned entitlement.

Dealers that have annual surplus returns are asked to request for an entitlement date

extension for non-moving Reman parts that have been in inventory for nearly one year, but

only qualify for the next return cycle; or to satisfy those situations when a part is waiting for

the next return cycle and then the item is sold to a customer with a core to be returned.

It is very important for all dealers to realize that an entitlement is established and time

stamped with the purchase date and an attrition date at the time Caterpillar invoices a dealer

for a Reman part. These dates will control when an entitlement is attritioned beyond the 455

or 548 day FIFO window or stated Major Component time period. Dealers can view

purchase dates and attrition dates in CMIS 2 (Core Management Information System).

All core returns, and surplus parts returns will be processed in a FIFO manner. When

using FIFO, this means that the oldest outstanding entitlement for the specific part

number is closed. If there is no entitlement for that specific part number, the oldest

outstanding entitlement within the Core Acceptability Family (CAF) is used.

Regarding Major Components, dealers should use the Core Management Information

System (CMIS 2) Major Component Attrition Notification Report to identify

entitlements that will be cancelled or attritioned by Caterpillar based on the current

Policy for your Marketing Organization (See REM02-41 or PELE0947).

Dealer Core Attrition Reporting

 Dealers are encouraged to continue to provide Monthly Core Attrition reporting to Caterpillar

through their DBS system when administering their customer core return policies. For those

dealers that report in this manner, we will reinstate core entitlements in support of those

special customer situations (excludes major components).

For Non DBS dealers that have a core tracking system, this information should be

transmitted to the Caterpillar mailbox for processing core attritions in the format requested as

published in the Communication Directory for Dealers (DCDD) or contact the CMIS 2

support staff for assistance.

For all dealers with custom systems without core tracking functionality, or core attrition

reporting capability, will not be required to provide this information until the dealer is

converted to DBS or has a suitable system to provide the information. However, all dealers

are still subject to the established core attrition time period for your Marketing Organization.

Reason for Policy

 This policy is being established to keep Dealer open entitlements more in phase with the

Caterpillar Core Management Information System (CMIS) records; minimize the need to

perform Reman core recounts; emphasize the need to improve dealer accounting and

reporting of core inventory and liabilities; and the policy moves Caterpillar from an

indefinite to a definite core return policy time period.

As we have emphasized the importance of core returns in past communications on this

subject over the years, from Caterpillar?s perspective, it is vital to recognize that the core is

the lifeblood of any exchange program. If we don?t get the core back from the customer, we

would be basically seeding an exchange program with ?new? parts and selling them at

discounted prices, which is not an attractive business to be in. From a customer perspective,

if they do not return the core back to the dealer, the customer does not really enjoy the full

cost benefit of purchasing a Reman part to reduce Owning & Operating costs.

First In First Out (FIFO) Accounting

 As previously mentioned, we will begin using FIFO accounting practices when managing

Reman core entitlements as we convert dealers from the current CMIS to CMIS 2. The FIFO

methodology will be used when attritioning cores and when core credits are issued.

When using FIFO, this means that the oldest outstanding entitlement for the specific

part number is closed. If there is no entitlement for that specific part number, the

oldest outstanding entitlement within the Core Acceptability Family (CAF) is used.

Using the specific part number first will help minimize price variances.

Core credits will be based on the FIFO invoiced core deposit and not based on the current

core deposit price. CMIS 2 has the ability to track core inspection, price and upgrade

variances. Changes in the Dealer Business System (DBS) 2.3.3 also allow the tracking of

core inspection, price and upgrade variances.

CMIS 2 and DBS or Solution Center

 Regarding the Core Management Information System (CMIS 2), it is a major tool

enhancement that will support your efforts to manage core returns and entitlements. In order

to properly manage your entitlements in CMIS 2, all dealers with the Dealer Business System

(DBS) or the Solution Center are expected to use the core-tracking module and to

electronically transmit Core Credit Requests (CCR?s) to the Caterpillar Mailbox. This

assures timely core credit processing and will prevent entitlements from being prematurely

attritioned. For those dealers that do not have DBS, Caterpillar expects the dealers to use the

CMIS 2 system to process core returns. Non-compliance could result in entitlements being

prematurely cancelled resulting in no core credit.

In addition, consideration is currently being made to assess a CCR processing add charge by

line item for all dealers that continue to issue paper CCR?s instead of using CMIS 2.

Summary

 ?         Caterpillar will administer a Core Attrition Policy for each Marketing Organization for all

      Reman parts purchases. Caterpillar will continue to administer the current core return

      policy for all Major Components. The Core Management Information System (CMIS 2)

      will automatically administer these policy parameters for dealers.

?         Cores attritioned by Caterpillar will not be reinstated.

?         Cores attritioned by dealers can be reinstated in support of special customer situations

      (excludes Major Components).

?         Attritions date extensions will be considered.

?         Any entitlement that has been attritioned by Caterpillar affecting a dealer?s surplus return

      (PRA) of new Reman parts will be automatically reinstated and credited up to 100%.

      The process will look back up to 24 months from the final credit issuance date to open an

      attritioned entitlement (excludes Major Components).

?         The policy will go into effect corresponding to each dealer?s scheduled CMIS 2

      ?Conversion Date?.

?         Use DBS core tracking module and electronically transmit Core Credit Requests to

      Caterpillar Mailbox or use CMIS 2 to process Core Credit Requests to Caterpillar.

Refer to the following IRM?s for more details: CMIS 2 Major Component Attrition

Notification Report PELE0947; Core Attrition Policy for Reman Parts Returned As Surplus

On A Parts Return Authorization (PRA) For All Marketing Organizations PELE0943; Major

Components Returned As Surplus On A PRA PELE0937.

Entitlement Reinstatement Guideline

 Dealers are encouraged to provide an electronic monthly report to Caterpillar via the mailbox

that reports those worn cores that are not going to be returned by their customers as well as

any no credit core (rejected cores) transactions. We expect dealers to use due diligence in

their reporting to avoid the problem of over reporting the numbers of cores that are not going

to be returned, only to request reinstatements a few days or weeks later (See Best Practice

Guidelines on Reman Web Site).

Dealers that report their Dealer Reported Attritions will be allowed to have these entitlements

reinstated. This flexibility is provided to allow reasonable exceptions to the dealerships

published and practiced core return policy after the dealer has submitted a dealer attrition

report. This flexibility will be restricted when dealers are not properly administering or

enforcing their core return policy. Furthermore, reinstatement of major components will not

be done unless agreed to by the Reman Product Group. In addition, reinstatements for no

credit cores will not be allowed.

Reinstatement is allowed only if the dealer provides the following information to their

designated Reman customer service representative.

1. Caterpillar Entitlement Dealer Code

2. Remanufactured Part Number

3. The original sales document date to the customer

4. The core attrition quantity

5. The dealers Customer Account Number

6. The original sales document number

7. Provide attrition reason Core Attrition (CA) or No Credit (NC). If No Credit (NC),

reinstatements will not be allowed.

Entitlement reinstatements (excluding Major Components) are also allowed in those

situations when the dealer has retained a Reman part in inventory, subsequently attritioned by

Caterpillar, and then subsequently sold it to a customer that has a core to return beyond the

normal core attrition policy. In practice, it will be our policy to reinstate the Caterpillar

Attritioned item when the part is sold from dealer inventory to a customer with a core and

has had core credit issued to the customer. The dealer must provide the sales document and

credit document and date information for reinstatement. The dealer can then process the

CCR to Caterpillar and ship the core.

Cat Attritions can be reinstated on a request basis only for any reman component subject to

the approval of the responsible Product Group. Requested are to be made first through your

normal Customer Service Contact person.

Entitlement Attrition Date Extension Guideline

 Dealers will be allowed to extend attrition dates when circumstances beyond their control

will cause them to not comply with the core return time period and to process the Core Credit

Request (CCR) on time. Dealers must ask for extensions before the entitlement cancels or is

attritioned. We encourage all dealers to call at least 15 days in advance of a major

component attritioning. Dealers should be using the Major Component Attrition Notification

Report to identify major components that will attrition and that may need an entitlement

attrition date extended (See REM02-41 or PELE0947). All extensions must be approved

through your designated Customer Service contact. This applies to all Reman components

including Major Components.

Dealers that have annual surplus returns are asked to request for an entitlement date

extension for non-moving Reman parts that have been in inventory for nearly one year, but

only qualify for the next return cycle; or to satisfy those situations when a part is waiting for

the next return cycle and then the item is sold to a customer with a core to be returned.

Core Management

Please refer to the Caterpillar Core Management Information System (CMIS 2) Parts

Information application describing all reman part/CAF and related information. Also refer to

other CMIS 2 inquiry applications such as Customer Profiles, Inspection Reason Codes,

Inspection Line Inquiry, Add Charge Information, Entitlement Activity, Entitlement Inquiry,

CCR Inquiry, CCR Entry, Shipment Processing; Process Packaging Grief; and Reporting to

properly manage core returns and monitor inspection performance. This information will be

available to all dealers worldwide after your CMIS 2 conversion date. In the meantime,

please continue to use the current CMIS Entitlement Parts Inquiry Screen describing the list

of parts in a Core Acceptability Family (CAF) and related part number detail.

For the latest updates of Reman Policies and Core Management (SELD0122), Core

Management Systems & Operations Procedures (SELD0040), and Shipping Instructions

(SELD0039), go to the Reman website and click on Procedures and Policies (listed under

Reman Program Information).

If you have any questions regarding core return processing, feel free to call your Corinth

Dealer Service Representative toll free at (800) 537-2928 or use our e-mail address --

reman_core_operations@cat.com. For assistance with technical questions, call the Peoria

Reman Customer Satisfaction Hot Line also toll free at (888) 88-REMAN or use our e-mail

address--Reman_Help@cat.com.