Additionally inventory growth is impacted by the

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Additionally, inventory growth is impacted by the timing and requirements of larger projects, which is now a strategic focus. 0 10 20 30 40 50 60 0 5,000 10,000 15,000 20,000 25,000 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 DIO days Inventories Inventory DIO DIO increased due to an increase in raw material in early 2015 from the Company purchasing raw materials to meet purchasing minimums. DIO increased due to the Company strategically purchasing raw materials in early 2014 to take advantage of low aluminum prices. DIO increased due to increases in WIP and FG, driven by increased volume and large jobs, respectively. Inventory by type $ in thousands November 29, 2014 November 28, 2015 August 27, 2016 Raw materials 9,604 9,464 9,449 Finished goods 3,513 4,045 5,776 WIP 3,126 3,623 4,279 Inventory - outside location 544 979 1,389 Inventory in transit 171 259 217 Inventory in inspection - 8 55 WIP cost variance (12) (98) (37) Raw material cost variance (21) (170) (51) Obsolete inventory reserve (520) (401) (517) Total 16,405 17,710 20,560
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© 2016 Grant Thornton LLP | Project Lightning | October 21, 2016 DRAFT 60 Excess and obsolete reserve for inventory $ in thousands November 29, 2014 November 28, 2015 August 27, 2016 Excess inventory 332 185 269 Obsolete inventory 104 61 88 Scrap metal 84 154 161 Total excess and obsolete reserve 520 401 517 E&O reserve as a percentage of RM 5.4% 4.2% 5.5% 0 50 100 150 200 250 300 350 400 450 500 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Inventory E&O in 000's Inventory in 000's Raw materials E&O inventory reserve The inventory reserve relates to raw materials, as WIP and FG are customizable pieces of inventory and delivered shortly after completion Balance sheet analysis Observations The table to the left presents the excess and obsolete reserve for inventory at the Historical Balance Sheet dates. Each month Subsidiary adjusts the inventory reserve to the current amount of potentially obsolete and excess inventory. This is performed in two steps: The Company reserves for excess inventory if on-hand quantity minus current demand is greater than the 5 year average annual usage. If on-hand quantity is greater than the 5 year average annual usage plus present demand, and the Company has not used or purchased this part in the past year, the Company will reserve the entire inventory balance for obsolescence. The Company also reserves for scrap sent back to Party 1 at the cost of rework of aluminum ($0.1692/pound), to be applied when the Company receives the billet back. Insights The E&O reserve for inventory is driven by raw materials, excluding aluminum billet, as the billet does not expire. These raw materials consist of fasteners, vinyl's and related small parts. If the Company changes a design of a FG, the raw materials used for the respective FG may become obsolete unless the Company can find another use for the raw materials.
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  • Spring '08
  • McCaffrey
  • Revenue, Grant Thornton LLP

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