Foreign Trade Zone (FTZ)

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Foreign (Not Free) Trade Zones (FTZs) are secured

areas under U.S. Customs supervision located in or

near a U.S. Customs port of entry. Customs’ entry

procedures do not apply to the goods inside a FTZ until

they are withdrawn for entry within the territory and

jurisdiction of the United States, exported, or destroyed

under Customs supervision

FTZ - Overview

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• Savings from Broker fees as you file entries weekly

and not on every shipment

• Merchandise Processing Fee (MPF) savings as a

result of filing fewer entries

• A one-time duty deferral that increased RUSA’s free

cash flow on the first inventory turn

• Tighter inventory controls and compliance as required

by the FTZ regulations

• Transit time reductions to the FTZ under direct delivery

FTZ - Benefits

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• FTZ initiation started April 2009

• FTZ phase I rollout in June 2009 at 1-2 containers/day

and capacity increased to 7-8 containers/day when

phased out in May 2010

• After 6 months of internal programming and 3 months

of testing, phase II with full FTZ benefits utilizing RUSA

facilities was rolled out on May 5, 2010

• Transit time savings of 1-2 days

FTZ - Initialization

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FTZ - Logistics Model

GPZ- Alternate Site Framework (ASF)(Full Cash Flow Improvement & Full Processing)

Southeastern & Plainfield

Fulfillment Center

(GPZ- ASF)-Receipts & Withdrawals

filed w/ Customs daily

Domestic Courier

Customer

Foreign Supplier

U.S. Customs-Processes release on

a weekly basis

U.S. Customs

Broker-Broker files weekly estimate/entry

and sends releases to FTZ

Physical goods move. Paperwork flow.

Integration Point

Software Inventory

FTZ System

FTZ Overview & Transaction Flow

FTZ - FIFO Processing

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• OSP uses a First In / First Out (FIFO) (Customs Modified)

Inventory System for processing FTZ entries

• The FTZ FIFO Inventory resides in a third party system

(Integration Point or IP) that is independent from OSP’s

mainframe and is reconciled with OSP daily

• The FTZ FIFO system does not control our inventory or dictate

how inventory is pulled

• The FTZ system supports daily filings of all admissions,

shipments and adjustments made to our FIRS system

• Duty is not paid until a foreign item is shipped to a customer

FTZ - FIFO Processing

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Payment Comparison- Free Cash Flow Impact

Today’s Payment Model

Payment Liability

at Import to Indy

(7 days)

Tomorrow’s Payment Model

Shipment FOB Shanghai

(25 days)

Shipment FOB Shanghai

(25 days)

Payment Liability Occurs

At Customer Shipment

(1 day to 4 months)

Payment Due on 22nd

Of Next Month After

Import Clearance

(Total 32 Days +

Days Left in Month+

22 days)

Payment Due on 22nd

Of Next Month After

Shipment

(Total 33 days +

Days in Month Post

Shipment + Avg. Inv.

Turn 1 day – 4 mo.+ 22 days)

Accrual Booked Upon

Receipt in FC

(7 days)

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• Communication from with ALL areas of the supply

chain:

Accounting, IT, Finance, Legal, Operations, Customer Service,

Sourcing, Logistics, Buyers, Human Resources, Carriers,

Forwarders, Brokers and Customs.

• Ongoing FTZ process review teams

• Test, Test, Test, Test and Test

• Plan for the unexpected

• Acquire qualified Legal professionals

• Use your local FTZ (GIFTZ) facilitator as a resource

FTZ - Looking Back

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• International exports without duty around the world

• In-house Customs estimate/entry filing

• Expansion to other divisions where it is cost effective

FTZ - Looking Forward

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Questions?