Project Lightning Redacted.pdf

On a monthly basis the company trues up direct

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On a monthly basis, the Company trues up direct material costs at standard to actual direct material costs for products shipped through the purchase price variance. The increase in the purchase price variance in TTM 16 is driven by growing variance between actual aluminum costs and aluminum at standard costs from Dec-15 through Feb-16. Additionally, scrap aluminum is sold to Party 1 to be tolled and converted to billet at contractual rates. The scrap line item represents the net value of the scrap billet at average actual cost less conversion costs for scrap inventories sent to Party 1. Subcontract costs are expenses related to direct projects where Subsidiary manages the installation of the products. The increase in TTM 16 relates to revenue growth driven by large direct projects. Insights The Company historically priced projects based on a costs plus margin build-up model. As such, the impact of aluminum commodity pricing does not have a significant impact on gross margin as price fluctuations are absorbed through contract pricing. For large projects, the Company additionally executes forward contracts to secure pricing for anticipated aluminum quantities, to minimize the impact of aluminum fluctuations.
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© 2016 Grant Thornton LLP | Project Lightning | October 21, 2016 DRAFT 50 Incremental overtime is the primary driver of average compensation growth over the Historical Period Income statement analysis Observations The table to the left presents direct labor costs over the Historical Period. The bottom left chart depicts monthly overtime costs over the Historical Period compared to overtime as a percentage of revenues. Direct labor increased $9,338 (29.4%) from Fiscal 15 to TTM 16 and 0.8% as a percentage of revenues. The primary driver of direct labor costs is volume of projects and increasing percentage of overtime. Average annual direct labor headcount increased from 1,000 in Fiscal 15 to 1,118 in TTM 16. Direct labor headcount specifically at the State 3 facility increased from 982 at Nov-15 to 1,118 as of Aug-16. Despite the 12.1% increase in headcount at this location, overall revenue growth of 23.6% over this same period resulted in significant overtime costs to perform the additional volume. As a result of increasing overtime, average compensation per direct employee increased from $31 in Fiscal 14 to $37 in TTM 16. Actual direct labor costs are allocated monthly to WIP on the basis of pounds of aluminum and allocated monthly to finished goods on the basis of percentage of sales. 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 0 100 200 300 400 500 600 700 800 900 1,000 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Overtime as a % of revenues Overtime cost (000s) Overtime As a % of revenues Direct labor detail $ in thousands Fiscal 14 Fiscal 15 TTM16 Fiscal 14 Fiscal 15 TTM16 % of revenue Direct labor - regular pay 24,433 23,860 28,041 12.0% 11.5% 10.9% Direct labor - overtime 3,158 3,997 7,802 1.6% 1.9% 3.0% Payroll taxes 2,469 2,539 3,481 1.2% 1.2% 1.4% Workers compensation 920 1,211 1,497 0.5% 0.6% 0.6% Other payroll 351 28 141 0.2% 0.0% 0.1% Disability 81 85 94 0.0% 0.0% 0.0% Total direct labor 31,412 31,719 41,057 15.4% 15.2% 16.0%
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  • Spring '08
  • McCaffrey
  • Revenue, Grant Thornton LLP

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