Inventory

9 Months Ended

Sep. 27, 2012

6. Inventory

Inventories are summarized as follows:

		September 27,		December 31,
		2012		2011
Raw materials		$	260.9	$	236.9
Work-in-process			2,097.9		1,800.0
Finished goods			34.7		40.8
	Product inventory		2,393.5		2,077.7
Capitalized pre-production			549.5		553.2
Forward loss provision			(574.4)		-
	Total inventory, net	$	2,368.6	$	2,630.9

Capitalized pre-production costs include certain contract costs, including applicable overhead, incurred before a product is manufactured on a recurring basis. Significant unfunded statement of work changes can also cause pre-production costs to be incurred. These costs are typically recovered over a certain number of ship set deliveries and the Company believes these amounts will be fully recovered.

Work-in-process inventory includes deferred production costs for the excess of production costs over the estimated average cost per ship set, and credit balances for favorable variances on contracts between actual costs incurred and the estimated average cost per ship set for units delivered under the current production blocks. Recovery of excess-over-average deferred production costs is dependent on the number of ship sets ultimately sold and the ultimate selling prices and lower production costs associated with future production under these contract blocks. The Company believes these amounts will be fully recovered. Sales significantly under estimates or costs significantly over estimates could result in the realization of losses on these contracts in future periods.

Non-recurring production costs include design and engineering costs and test articles.

Inventories are summarized by platform and costs below:

		September 27, 2012
		Inventory		Capitalized Pre-Production		Deferred Production		Non-Recurring	Forward Loss Provision		Total Inventory, net September 27, 2012
		Inventory		Capitalized Pre-Production		Deferred Production		Non-Recurring	Forward Loss Provision		Total Inventory, net September 27, 2012
B747	$	94.3	$	6.9	$	23.2	$	2.0^$	(5.1)	$	121.3
B787		240.0		196.9		578.5		27.8	(184.0)		859.2
Boeing - All other platforms		423.7		4.7		(36.9)		47.0	-		438.5
A350		140.5		56.9		124.2		39.8	(8.9)		352.5
Airbus - All other platforms		93.5		-		17.4		-	-		110.9
G280		76.8		5.5		77.8		-	(98.8)		61.3
G650		38.0		224.9		274.2		-	(162.5)		374.6
Rolls-Royce⁽¹⁾		16.9		53.7		44.5		-	(115.1)		-
Sikorsky		-		-		-		7.6	-		7.6
Aftermarket		44.1		-		-		-	-		44.1
Other platforms⁽²⁾		(4.9)		-		-		3.5	-		(1.4)
Total	$	1,162.9	$	549.5	$	1,102.9	$	127.7^$	(574.4)	$	2,368.6

		December 31, 2011
		Inventory		Capitalized Pre-Production		Deferred Production		Non-Recurring	Total Inventory, net December 31, 2011		Cumulative Forward Loss Provision⁽⁴⁾
		Inventory		Capitalized Pre-Production		Deferred Production		Non-Recurring	Total Inventory, net December 31, 2011		Cumulative Forward Loss Provision⁽⁴⁾
B747	$	88.8	$	5.5	$	31.8	$	10.8^$	136.9	$	(18.3)
B787		210.3		210.5		533.2		17.1	971.1		-
Boeing - All other platforms		428.2		2.1		6.9		20.5	457.7		-
A350		96.6		36.2		-		41.4	174.2		(3.0)
Airbus - All other platforms		84.0		-		11.5		-	95.5		-
G280		42.9		-		37.2		-	80.1		(177.6)
G650		93.1		240.9		167.1		-	501.1		-
Rolls-Royce⁽³⁾		12.1		58.0		25.5		-	95.6		-
Sikorsky		-		-		-		17.5	17.5		(29.0)
Aftermarket		43.1		-		-		-	43.1		-
Other platforms⁽¹⁾		56.3		-		-		1.8	58.1		-
Total	$	1,155.4	$	553.2	$	813.2	$	109.1^$	2,630.9	$	(227.9)

Forward loss provision of $151.0 recorded in the third quarter of 2012 exceeded the total inventory balance. The excess of the charge over program inventory is classified as a contract liability of $35.9 which will be reduced as additional inventory is generated. This contract liability is reported in other current liabilities. This liability will amortize into the forward loss category of inventory as inventory on the program increases.
Includes over-applied and under-applied overhead.
Net of $58.0 reclassification of Rolls-Royce non-recurring inventory to pre-production, to conform to current year presentation.
Forward loss charges taken through December 31, 2011 were reflected within capitalized pre-production and inventory for the respective programs. The balances of each inventory classification are shown as the net amounts with the forward loss provisions shown only for purposes of comparability.

The following is a roll forward of the capitalized pre-production costs included in the inventory balance at September 27, 2012:

Balance, December 31, 2011⁽¹⁾	$	553.2
Charges to costs and expenses		(32.4)
Capitalized costs		28.7
Balance, September 27, 2012	$	549.5

___________________

Net of $58.0 reclassification of Rolls-Royce non-recurring inventory to pre-production, to conform to current year presentation.

The following is a roll forward of the deferred production costs included in the inventory balances at September 27, 2012:

Balance, December 31, 2011	$	813.2
Charges to costs and expenses		(160.8)
Capitalized costs		447.9
Exchange rate		2.6
Balance, September 27, 2012	$	1,102.9

Significant amortization of capitalized pre-production and deferred production inventory will occur over the following contract blocks:

	Contract Block Quantity		Orders⁽¹⁾
	Contract Block Quantity		Orders⁽¹⁾
B747-8		56		81
B787		500		812
A350 XWB		400		558
G280		250		49
G650		350		89
Rolls-Royce		350		75

Orders are from the published firm-order backlogs of Airbus and Boeing. For all other programs, orders represent purchase orders received from OEMs and are not reflective of OEM sales backlog. Orders reported are total block orders, including delivered units.

Current block deliveries are as follows:

		Current Block Deliveries
Model
B747-8		48
B787		84
A350 XWB		2
Business/Regional Jets⁽¹⁾		98

Contract block quantity is projected to fully absorb the balance of deferred production inventory. Capitalized pre-production and deferred production inventories are at risk to the extent that we do not achieve the orders in the forecasted blocks, as those categories of inventory are recoverable over future deliveries. In the case of capitalized pre-production this may be over multiple blocks. Should orders not materialize in future periods to fulfill the block, potential forward loss charges may be necessary to the extent the final delivered quantity does not absorb deferred inventory costs.

Excludes Hawker deliveries as the block closed in early 2012.

- Definition

The entire disclosure for inventory. This may include, but is not limited to, the basis of stating inventory, the method of determining inventory cost, the major classes of inventory, and the nature of the cost elements included in inventory. If inventory is stated above cost, accrued net losses on firm purchase commitments for inventory and losses resulting from valuing inventory at the lower-of-cost-or-market may also be included. For LIFO inventory, may disclose the amount and basis for determining the excess of replacement or current cost over stated LIFO value and the effects of a LIFO quantities liquidation that impacts net income.

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