Corporate
Knowledge

Chuck Jones, President
Corporate Knowledge, Inc.
4444 Auckland Avenue
Toluca Lake, CA 91602

September 16, 2006

Dear Chuck,

This letter will describe the extent of Corporate Knowledge, Inc.'s (CKI) assistance in establishing International Rectifier's (IR) financial Shared Service Center.

In 2003, after a benchmark study of comparable industry financial costs, IR senior management decided to embark on a project that would implement Shared Service Centers (SSC). The objectives of the project were twofold. The first objective was to reduce the overall cost of financial services by $3 million annually while meeting objective two, which was the creation of a service center model that would be scaleable to accommodate anticipated business expansion. With its existing business model of nineteen entities, IR decided to create three regional servicing centers (North America, Asia, and Europe). Each servicing center would establish a service level agreement with its customers and would become a profit center.

CKI provided numerous services during this project implementation which were pivotal to the development, establishment and successful completion of the three service centers. CKI provided detailed As-Is process mapping of all financial activities for each department along with a thorough analysis of each department activities and customers. CKI also interviewed the departments' customers throughout the world and provided root cause analysis and evaluations which then were then used to create new, innovative process flows. This resulted in rapid completion of the initial phases of the project implementation.

CKI's staff also worked with the subject matter experts on implementing the business processes for each Accounting department, as well as with the departments' internal customers' subject matter experts. These were the individuals that drove the cultural change and communicated the value of a service center system throughout the organization.

CKI provided valuable process innovation and the required implementation resources in Accounts Payable, Fixed Assets, General Ledger, Accounts Receivable and Inventory Control areas:

Accounts Payable: IR achieved a significant reduction in transaction times, costs, and resource involvement through the use of bank-provided ACH vendor payments, the implementation of an invoice document scanning and invoice approval workflow system, the implementation of a purchase card system, the establishment of metrics, the implementation of Sarbanes Oxley audit controls, and the establishment service level agreements.

  • Reduction in per check costs $30 to $0.25
  • Reduction in the number of days to obtain invoice approval by internal customers from 30 to 45 days to 1 to 2 days
  • Complete visibility by users of invoice approval process
  • Significant reduction in the amount of time AP personnel spent on open invoices issues which had previously consumed 10 to 20% of overall AP staff activities
  • Obtained $150,000 bank rebate, plus eliminated an estimated of 15 to 20% of overall AP staff activities related to payment

Fixed Assets: CKI implemented a new global fixed asset system which eliminated seven different systems used at nineteen world-wide entities. CKI's project scope included an appraisal of all assets, establishment of a central tagging system, policies and procedures, a viable system of recording and maintaining equipment physical inventory by plant operations (rather than financial personnel) via hand-held scanning technologies, establishment of metrics, and comprehensive training manuals. The overall results are global reliability and visibility of assets to all functional departments through the life cycle of assets, from initial purchases, through depreciation to final disposal, and also a significant reduction in physical asset management, including asset research time.

  • The physical inventory reconciliation realized a 5 - 20% equipment retirement, which resulted in an estimated tax savings of $567,000 per year
  • We can now reconstruct actual asset relocation dates, which we expect to result in overall local tax paybacks of $1-1.5 million

General Ledger: CKI performed overall general ledger reviews of all systems at the enterprise and local levels (in order to migrate to one central system) and created standards by which the unified general ledger could be established. Improvements were also made to the monthly close cycle. The migration to a single ledger is an ongoing continuous improvement project.

  • The monthly close cost was reduced by $40,000 per month.

Accounts Receivable: CKI improved process, tracking and controls of the different forms of organizational receivables, and established AR hold processes for both system and administrative controls.

  • Improved metrics
  • Improved operational management performance
  • Improved compliance with Sarbanes Oxley

Inventory Control: CKI established a uniform product inventory reporting process so financial data was consistent throughout all entities, assisted in handling numerous inconsistencies in production entries on a global basis, and established enterprise-wide inventory reporting standards, as well as improved policies and procedures.

Because of CKI's considerable expertise in technologies and process improvement methodologies, IR was able to contract one organization, CKI, to assist us in this massive undertaking. In a number of these areas, both internal resources as well as external consultants were brought in as possible partners; however, because of CKIís extensive company knowledge and experience, IR selected CKI to handle all of our Shared Services projects.

Regards

Bill Field Project Manager