Introduction Paul Kirch Specialist in multinational Oracle

Introduction • Paul Kirch Specialist in multinational Oracle implementations, multinational tax issues, and globalization • Tel: 408 -316 -5899 • Paul_Kirch@yahoo. com • Client list: General Electric Aircraft Engines Cisco Systems KLA-Tencor Genentech FEI Company Presentation_ID 1

Agenda • Introduction • The Company • The Problem • Multi-org Setup • Overview of Intercompany Accounting “Virtual” Circle of Life Transaction Mapping • Conclusion Presentation_ID 2

FEI Company • Nanotech company engaged in the manufacture of tools used in silicon wafer design (largely design labs) • Spin off from Phillips Semiconductor • $500 MM in sales in FY 2004 • Sales offices in 40 countries worldwide • Principal manufacturing in U. S. (Hillsboro, Oregon and Peabody, Massachusetts) and Europe (Brno’ Czech Republic and Acht, the Netherlands) • In process of implementing the full suite of applications (Oracle 11. 5. 10) over next two years Presentation_ID 3

The Problem • Did not want to implement the standard Oracle Multi-org structure • Needed to be able to accommodate a high number of intercompany transactions between European and U. S. manufacturing sites • Short timeline and tight budget Presentation_ID 4

• Multi-Org Alternatives and Setup Presentation_ID 5

FEI “Virtual” Circle of Life Customer Purchases a Manufactured Part. Manufacturing Inventory transfers a Finished Goods part to Manufacturing Inventory. (MFG FG inventory) Customer Inventory MFG issues a FGI part to Service as a Spare Part. FSE returns Defective Part (RMAs). - buy MFG. (PD) FSE Repair Vendor Part is send to outsourced repair facility and returned to SSD. Repair vendor returns part to customer. Customer Part is repaired and returned to customer (SSD Customer). Service issues a Spare Part to an FSE. Customer sends in part for repair (RMA) Spares Inventory (SSD) Part is not salvageable and is scrapped. Scrap 1 Presentation_ID 6

Multi-Org Alternatives A) Standard Model - one SOB per country/currency; one legal entity/operating unit per legal entity. A country/legal based model. B) “Inverted” Model – shared operating unit for shared business processes - local GL SOB for legal/statutory reporting. A business process efficient model. Presentation_ID 7

Standard Oracle (“Silo”) Multi-Org Model All Subsidiaries are Parallel Entities Ledger Consolidation Central Ger L 1410 1462 Fra U. K Ita Swe Den 1475 1473 1463 1444 1432 Fra Inventory EE Mea Hol Bel Swi Aus Spa Pol 1461 1442 1465 1415 1467 14 xx Swe Den Fin Nor Spa Por Per Operating Unit : One Validation Org for VAT rates , One Planning Org , Global Master. Presentation_ID 8

Shared Operating Unit Model General Concept Shared Processes for Sales and Service Entities Local Legal Adjustment Entries are booked at country level Unit A Global Operating Unit GL, OM, AR, INV Entity Separation by Balancing Segment Unit B Unit C Unit D Unit E Unit F Local Processes (AP, FA, Payroll…? ) Presentation_ID 9

Enterprise Consolidation With FEI “Push Down/Push Up” Model WW Consolidated So. B GL FEI Company Europe Book of Record IT Presentation_ID FR DE Eliminations and Consolidations Entries FEI Company Asia and U. S HK SG Local Legal Adjustment Entries are booked at country level 10

Traditional Multi-org Model • Built for separate legal entities and country organizations • Automatic inter-company activities confined to month-end cross charges, consolidation, and special functions. • Essentially all subsidiaries operate as independent units. The “Silo” model is assumed in most of Oracle applications, inter-company, localization and globalization functionality as well implementation and training models. Presentation_ID 11

Benefits of Shared OU Model • Simplify maintenance: Eliminate duplication and synchronization of setups • Simplify implementation process: Roll-out, CRPs, testing would require only one OU. Operating unit parameter need to be setup only once in all operational modules. GL setup is not simplified, local GL books required. • Easily create shared service centers: Customer service, AP and Procurement, Accounting and Finance in 1 location, without changing responsibilities • Simplify and speed up monthly closing: Inverted process means that Corporate So. B closes first. Presentation_ID 12

Issues of “Silo” Model • Duplicate setups and maintenance • Customer balance, inventory, and order visibility by subsidiary • Logistics operations (allocations) limited per OU • Global view of business only at high level (financial consolidations) or special tools, such as a DW • Duplicate inter-company transactions without value to the business • Implementation impact (setups, CRPs, configuration, testing) Presentation_ID 13

Additional Issues with “Silo” - No standard solution for global standard inventory cost (breakout of standard cost and inter-company “uplift” on Cost of Sales entries). Solution: transfer at cost and bill uplift separately. - No standard solution for Commissionaire Interco-invoice price = Sales price less commission%. Investigate: possible solution for cost-plus inter-co pricing in 11. 5. 9/11. 5. 10. Advanced Pricing Module difficult and costly to implement. - Investigate: No complete standard solution for internal supply chain movements across entities and borders (internal sales orders). Presentation_ID 14

Benefits of “Silo” Model • VAT calculations and reports can be generated through standard functionality. Oracle VAT Group functionality allows standard compliance in either model. • Country specific accounting regulations, Oracle globalizations. • Sequencing for sub-ledger (VAT Invoices) and accounting entries. Oracle setups provide functions to assign different sequences within the same OU. Presentation_ID 15

Additional Design Guidelines: • Business Group is used to segregate HR information. If you request a list of employees in a module, you will only see those employees in that ‘Business Group. ’ • Inventory Org defines the level at which you track inventory transactions and balances. The relationship between Inv Org and So. B is used for financial purposes only (creating requisitions and replenishing supplies. ) Inventory Org must be below Business Group (Cisco). • Legal Entity represents a company for which you prepare fiscal or tax reports. Generally, the LE is defined at the same level as the Operating Unit. • Operating Unit is an autonomous organization that uses Oracle Receivables, Oracle Payables, Oracle OM, Oracle Purchasing, and Oracle Projects Presentation_ID 16

• Intercompany Transaction Modeling Presentation_ID 17

Types of Intercompany Transactions • Inter-Company Sales (including drop shipments to customer) • Inter-Company Purchases/Sales Orders • Inter-Company Adjustments • Inter-Company Chargebacks • Inter-Company Payments • Inter-Company RMAs • Inter-Company Cross-Charges and Allocations (Marketing, Admin, etc. ) • Inter-Company Transfers (Assets) • …. And the return/reversal of each of them Required: - Transfer Pricing, VAT, EFT Formats - Statutory Reports, Financial Statements and Commercial Invoice Presentation_ID 18

Oracle Standard I/C Functionality • Factory Drop-Ship Function (sale from one entity, shipment from another entity): Oracle automatically generates AR invoice at shipping entity, matching AP invoice at selling entity. • Internal Sales Orders: available cross-entities, sets of books. For inventory items, expense items. Allows in-transit visibility. No external invoices provided. • Vendor Drop-Ship Function (shipment from outsource manufacturing vendor directly to customer): AR Invoice to Customer, matching AP Invoice from Vendor. • GIS Intercompany Accounting: Financial only transactions - GL only; no VAT calculation or reporting. Presentation_ID 19

FEI “Virtual” Circle of Life Customer Purchases a Manufactured Part. Manufacturing Inventory transfers a Finished Goods part to Manufacturing Inventory. (MFG FG inventory) Customer Inventory MFG issues a FGI part to Service as a Spare Part. FSE returns Defective Part (RMAs). - buy MFG. (PD) FSE Repair Vendor Part is send to outsourced repair facility and returned to SSD. Repair vendor returns part to customer. Customer Part is repaired and returned to customer (SSD Customer). Service issues a Spare Part to an FSE. Customer sends in part for repair (RMA) Spares Inventory (SSD) Part is not salvageable and is scrapped. Scrap 1 Presentation_ID 20

Transaction Mapping Transaction Sales Organization MFG and Shipping Organization Transfer Price Oracle Treatment Std. / Gap? France customer purchases mfg part from Acht drop ships part to customer in France. (1 SOB, 2 OUs) France SSD Acht Standard Cost? Trading Networks No gap. U. S customer purchases part manufactured in Acht. (Mfg Mfg) U. S. Hillsboro Acht Standard Cost Internal Sales Orders No gap. Customer returns part manufactured in Acht in the United States. (RMA) (Ser Mfg) Original: N/A Original: Acht RMA: US Process Solution No gap. RMA: US Standard Cost US service inventory purchases part from Acht manufacturing (Ser Mfg) Purchasing Org: US Service Org Acht Manufacture Standard Cost Internal PO/ Sales Order No gap. Service in U. S. purchases part from services in Europe BV Purchasing Org: US Service Org Acht Services Org Standard Cost Internal PO/ Sales Order No gap. Presentation_ID 21

Intercompany Accounting: Drop Shipment Acht Mfg (Ship Org) France SD (Sale Org) I/C Rec DR 200 I/C Revenue CR 200 I/C COGS DR 200 Inventory CR 200 AR Customer Consolidated AR - Customer DR 200 Revenue - Trade Inventory DR 200 Revenue - Trade CR 200 DR 200 COGS DR 200 I/C Pay CR 200 Inventory CR 200 Factory Drop-Ship: France takes Sales Order. SO is drop-shipped from Acht. Oracle automatically generates AR invoice at shipping entity, matching AP invoice at selling entity. Presentation_ID 22

Intercompany Accounting: Internal SO Acht (Ship Org) I/C Rec DR 160 I/C Rev Hillsboro (Sales Org) CR 160 IC COGS DR 160 Inventory CR 160 AR - Customer Revenue. Trade Inventory DR 200 AR- Custom CR 160 DR 200 Revenue CR 200 DR 160 I/C AP Consolidated CR 200 COGS DR 160 Inventory CR 160 Internal Sales Orders: U. S. Purchases from Acht/ Sells to End Customer Available cross-entities, sets of books. For inventory items, expense items. Allows in-transit visibility. No external invoices provided. Presentation_ID 23

Intercompany Accounting: RMAs Acht (Sales Org) Hillsboro (Ship Org) Inventory DR 200 Spares Reserves I/C COGS IC AP CR 200 Spares Reserves CR 200 DR 200 Inv. Reserves Inventory Consolidated Inventory DR 200 Spares Reserves CR 200 DR 200 Inventory I/C AR CR 200 DR 200 I/C Sales Revenue CR 200 Return Material Authorization: BV customer returns RMA in Acht for material manufactured in U. S Presentation_ID 24

Discussion Presentation_ID 25